As filed with the Securities and Exchange Commission on November 5, 1999
File Nos. 33-500
811-4418
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933
Post-Effective Amendment No. 27
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 29
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CALIFORNIA INVESTMENT TRUST II
(Exact Name of Registrant as Specified in Charter)
44 Montgomery Street, Suite 2100
San Francisco, California 94104
(Address of Principal Executive Office)
(415) 398-2727
(Registrant's Telephone Number)
STEPHEN C. ROGERS, PRESIDENT
44 Montgomery Street, Suite 2100
San Francisco, California 94104
(Name and Address of Agent for Service)
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It is proposed that this filing will become effective:
___ immediately upon filing pursuant to Rule 485(b)
___ 60 days after filing pursuant to Rule 485(a)(1)
_x_ 75 days after filing pursuant to Rule 485(a)(2)
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Please Send Copy of Communications to:
JULIE ALLECTA, ESQ.
Paul, Hastings, Janofsky & Walker LLP
345 California Street
San Francisco, California 94104
(415) 835-1600
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CALIFORNIA INVESTMENT TRUST II
CONTENTS OF POST-EFFECTIVE AMENDMENT
This post-effective amendment to the registration statement of the Registrant
contains the following documents:
Facing Sheet
Contents of Post-Effective Amendment
Part A - Prospectus for shares of the following funds:
EUROPEAN GROWTH & INCOME FUND
NASDAQ-100 INDEX FUND
SHORT-TERM U.S. GOVERNMENT BOND FUND
Part B - Statement of Additional Information for shares of the following
funds:
EUROPEAN GROWTH & INCOME FUND
NASDAQ-100 INDEX FUND
SHORT-TERM U.S. GOVERNMENT BOND FUND
Part C - Other Information
Signature page
Exhibit
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CALIFORNIA INVESTMENT TRUST II
FORM N-1A
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PART A
PROSPECTUS
EUROPEAN GROWTH & INCOME FUND
NASDAQ-100 INDEX FUND
SHORT-TERM U.S. GOVERNMENT BOND FUND
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Prospectus
January 18, 2000
CALIFORNIA INVESTMENT TRUST
FUND GROUP
ABOUT THE FUNDS
European Growth & Income Fund 1
Nasdaq-100 Index Fund 4
Short-Term U.S. Government Bond Fund 8
INVESTING IN THE FUNDS
Fund Management 10
Buying and Selling Shares 11
Transaction Policies 17
Administrative Information 19
Dividends and Taxes 21
(800) 225-8778
The Funds are not bank deposits and are not guaranteed, endorsed or insured by
any financial institution or government entity such as the Federal Deposit
Insurance Corporation (FDIC).
As with all mutual funds, the Securities and Exchange Commission has not
approved these securities or passed on whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a criminal offense.
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European Growth & Income Fund
Ticker Symbol:
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GOAL
The Fund's goal is to provide long-term capital appreciation and income by
investing in large-sized European companies.
STRATEGY
The Fund seeks to invest primarily in the stocks of large-sized companies
located in Europe. In selecting securities, the Fund attempts to invest in
companies that comprise the Dow Jones Stoxx 50 Index which we will refer to as a
target portfolio.
The Fund intends to invest using American Depository Receipts, commonly referred
to as ADRs. ADRs are traded on U.S. stock exchanges and are available for some,
but not all securities that make up the target portfolio. If a company that is
in the target portfolio does not have an ADR available on a U.S. exchange, or if
in the Manager's opinion the Fund is better served, the Manager will invest in
ADRs of other companies that are similar to those in the target portfolio.
The Fund is not considered an index fund because it will not attempt toprecisely
track the performance or invest in securities that make up the index. However,
similar to index funds, it will generally remain fully invested and its
performance should generally reflect the Dow Jones Stoxx 50 Index. The Fund
attempts to minimize portfolio turnover.
Under normal circumstances, it is the Fund's policy to typically invest 80% of
its total assets in stocks (65% if total Fund assets are under $25 million). At
the Manager's option, the Manager may elect to purchase futures contracts to
attempt to remain fully invested in the markets. This percentage of futures held
in the portfolio will typically not exceed the cash (or cash equivalents)
balance of the Fund.
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MAIN RISKS
The stock markets go up and down every day. As with any investment whose
performance is linked to these markets, the value of your investment in the Fund
will fluctuate. If the Fund's value drops during the period in which you hold
the Fund, you could lose money.
Because foreign stock markets operate differently from the U.S. market, the Fund
may encounter risks not typically associated with those of U.S. companies. For
instance, foreign companies are not subject to the same accounting, auditing,
and financial reporting standards and procedures as required from U.S.
companies; and their stock may not be as liquid as the stock of similar U.S.
companies. In addition, foreign stock exchanges, brokers, and companies
generally have less government supervision and regulation than their
counterparts in the United States. These factors, among others, could negatively
impact the returns the Fund.
When investing in an international fund such as this Fund, there always is
country risk, which is the chance that a country's economy will be hurt by
political troubles, financial problems, or natural disasters.
There is also currency risk which is the chance that returns will be hurt by a
rise in the value of one currency against the value of another. Non-U.S.
dollar-denominated securities may experience adverse foreign currency
fluctuation which could also lower the value of the Fund's share price.
IS THE FUND RIGHT FOR YOU?
The Fund may be a suitable investment for you if you wish to add an
international stock fund to your existing holdings, which could include other
stock investments as well as bond, money market, and tax-exempt investments. If
as an investor, you are willing to accept the additional risks associated with
international investments, seeking growth of capital over the long term (at
least five years), and not looking for current income, and characterize your
investment temperament as "relatively aggressive," this Fund may be an
attractive investment for you.
OTHER RISKS OF THE FUND
Under normal circumstances the Fund may follow a number of investment policies
to achieve its objective. The Fund may invest in stock futures. Losses (or
gains) involving futures can sometimes be substantial - in part because a
relatively small price movement in a futures contract may result in an immediate
and substantial loss (or gain) for the Fund. In an effort to minimize this risk,
the Fund usually will not use futures for speculative purposes or as leverage.
It is the Fund's policy to hold cash deposits equal or greater than the total
market value of any futures position. The value of all futures and options
contracts in which the Fund acquires an interest will not exceed 20% (35% if
under 25 million in total net assets) of current total assets.
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PERFORMANCE
Performance results have not been provided because the Fund has not been in
existence for a full fiscal year.
FEES & EXPENSES
The following table describes what you would expect to pay as a Fund investor.
The Fund's annual operating expenses are paid from the Fund's assets.
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SHAREHOLDER FEES
Sales and redemption charges none
ANNUAL OPERATING EXPENSES
Management fees 0.85%
12b-1 fees none
other expenses ** 0.10%
TOTAL ANNUAL FUND OPERATING EXPENSES 0.95%
The manager has limited the fund's expenses at 0.95% since the Fund's inception.
This limitation is guaranteed though 12/31/00.
** Other expenses are based on estimated amounts for the current fiscal year.
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Example of Fees
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The table below shows what you
would pay in expenses over time, whether or not you sold shares at the end of
each period. It assumes a $10,000 initial investment, 5% total return each year
and no changes in expenses. This example is for comparison purposes only. It
does not necessarily represent the Fund's actual expenses or returns.
ONE YEAR THREE YEARS
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$99 $311
3
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The NASDAQ-100 INDEX FUND
Ticker Symbol:
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GOAL
The Fund attempts to replicate the performance of the largest non-financial
companies as measured by The Nasdaq-100 Index.
STRATEGY
The Fund is managed passively, which means the Manager is trying to replicate
the performance of The Nasdaq-100 Index. To do this, the Fund invests primarily
in the stocks compromising the Index. The Fund will buy stocks so that the
holdings in the portfolio match those of the Index. Under normal circumstances,
it is the Fund's policy to typically invest 80% of its total assets in the
stocks comprising the index (65% if total Fund assets are under $25 million).
Generally, the percentage of the portfolio made up of stocks is higher.
Like most index funds, the Fund will invest in futures contracts. The Fund
generally maintains some short-term securities and cash equivalents in the
portfolio to meet redemptions and needs for liquidity. The Manager will
typically buy futures contracts so that the market value of the futures
contracts is as close to the cash balance as possible. This helps minimize the
tracking error of the Fund.
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THE NASDAQ-100 INDEX
The Nasdaq-100 Index is made up of the 100 largest non-financial stocks traded
on the Nasdaq Stock Market. The stocks that make up this Index are currently
heavily weighted in the technology sector. Because of the concentration in a
specific sector, high volatility or poor performance of the sector will affect
the volatility of the Fund and its performance.
The individual stocks that make-up the Index have total market values ranging in
size from $516 million to $478 billion as of November 1, 1999 and represent
roughly 13.5% of the U.S. equity markets on a market capitalization basis.
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MAIN RISKS
The stock markets go up and down every day. As with any investment whose
performance is linked to these markets, the value of your investment in the Fund
will fluctuate. If the Fund's value drops during the period in which you hold
the Fund, you could lose money.
The Fund primarily invests in U.S. stocks and is designed to track the overall
performance of The Nasdaq-100 Index. In an attempt to accurately represent the
Index, the Fund will typically not take steps to reduce its market exposure so
that in a declining market, the Manager will not take steps to minimize the
exposure of the Fund to the market.
Many factors will affect the performance of the markets. Two major factors that
may have both a positive and negative effect on the markets are economic and
political news. These effects may be short-term by causing a change in the
market that is corrected in a year or less; or they may have long term impacts
which cause changes in the market that can last years. Some factors may affect
change in one sector of the economy or one stock, but don't have an impact on
the overall market. The particular sector of the economy or the individual stock
may be affected for a short or long-term.
The Fund invests in the most active, non-financial companies that are traded on
the Nasdaq Stock Market and comprised of various sectors of the economy. During
periods where alternative investments such as bonds, money market instruments
and equity sectors different than those represented in the Index outperform the
Index, we expect the performance of the Fund to underperform other mutual funds
that invest in these alternative categories.
IS THE FUND RIGHT FOR YOU?
If you are looking for a diversified stock fund, we feel this Fund may be right
for you. You should be comfortable with the changing values of the stock market
and the risk that your investment could decline in value. Your investment time
frame should be long-term in nature. This Fund is designed as a passive
investment, meaning that you are not trying to time movements in the market by
trading in and out of Fund. Short-term trading of the Fund's shares is strongly
discouraged. Recently, the Index has shown more volatility in comparison to
other broader benchmarks such as the S&P 500.
OTHER RISKS OF THE FUND
The Fund's primary risks are associated with changes in the stock market,
however, there are other risks associated with the Fund. These risks generally
apply to how well the Fund tracks the Index. For example, the Fund invests in
futures contracts to the extent that it holds cash in the portfolio. If the
futures contracts owned by the Fund do not track the Index, the Fund's
performance relative to the Index will change.
Some funds are able to lend portfolio securities in order to offset expenses.
The Fund does not expect to engaged in this strategy; however, in the event that
it did, there is a slight risk that this practice could negatively impact the
net assets value of the Fund.
5
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PERFORMANCE
Performance results have not been provided because the Fund has not been in
existence for a full fiscal year.
FEES & EXPENSES
The following table describes what you would expect to pay as a Fund investor.
The Fund's annual operating expenses are paid from the Fund's assets.
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SHAREHOLDER FEES
Sales and redemption charges none
ANNUAL OPERATING EXPENSES
Management fees 0.50%
12b-1 fees none
other expenses** 0.20%
Total Annual operating expenses 0.70%
Expense reduction* 0.05%
NET OPERATING EXPENSE 0.65%
The manager has agreed to limit thefund's expenses to 0.65%. This limitation is
guaranteed though 12/31/00.
** Other expenses are based on estimated amounts for the current fiscal year.
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Example of Fees
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The table below shows what you
would pay in expenses over time, whether or not you sold shares at the end of
each period. It assumes a $10,000 initial investment, 5% total return each year
and no changes in expenses. This example is for comparison purposes only. It
does not necessarily represent the Fund's actual expenses or returns.
ONE YEAR THREE YEARS
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$68 $214
6
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Nasdaq(R), Nasdaq-100(R)and Nasdaq-100 Index(R)are trade or service marks of The
Nasdaq Stock Market, Inc. (which with its affiliates are the "Corporations") and
are licensed for use by the Fund. The product(s) have not been passed on by the
Corporations as to their legality or suitability. The product(s) are not issued,
endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO
EXPRESS OR IMPLIED WARRANTIES, AND DISCLAIM ALL WARRANTIES INCLUDING ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT
TO THE PRODUCT/INDEX (MEANING THE INDEX, THE PRODUCT(S), THEIR USE, THE RESULTS
TO BE OBTAINED FROM THEIR USE, OR ANY DATA INCLUDED THEREIN). THE CORPORATIONS
SHALL HAVE NO LIABILITY FOR ANY DAMAGES, CLAIMS, LOSSES, OR EXPENSES WITH
RESPECT TO THE PRODUCT/INDEX. THE CORPORATIONS SHALL HAVE NO LIABILITY FOR ANY
LOST PROFITS OR SPECIAL, PUNITIVE, INCIDENTAL, INDIRECT, OR CONSEQUENTIAL
DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
7
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SHORT-TERM U.S. GOVERNMENT BOND FUND
Ticker Symbol:
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GOAL
The Fund will attempt to maximize current income and preserve investor's
principal.
STRATEGY
The Fund will typically invest in short and intermediate-term bills, notes and
bonds whose principal and interest are backed by the full faith and credit of
the United States Federal Government. In addition, the Manager may invest in
higher yielding securities which are not backed by the full faith and credit of
the U.S. Federal Government. The Fund intends to maintain an average maturity
berween 2 and 6 years in an effort to reduce share price volatility.
The Fund's Manager intends to select securities that it believes will provide
the best balance between risk and return within the Fund's range of allowable
investments. The Managers' investments will typically consist of full faith and
credit obligations of the U.S. Federal Government and its agencies or
instrumentalities, as well as other securities which the Manager believes will
enhance the Fund's total return. The Manager considers a number of factors,
including general market and economic conditions, to balance the portfolio.
While income is the most important part of return over time, the total return
from a bond or note includes both income and price gains or losses. The Fund's
focus on income does not mean it invests only in the highest-yielding securities
available, or that it can avoid losses of principal.
IS THE FUND RIGHT FOR YOU?
We recommend that investors seeking current income, with a short to
intermediate-term investment horizon consider this Fund. The Fund may be
appropriate for investors in regular accounts and retirement accounts who want
to avoid credit risk but are comfortable with some volatility of the Fund share
price.
MAIN RISKS
This Fund tends to be very conservative in nature. However, it is subject to
several risks, any of which could cause the Fund to lose money. These include:
Interest rate risk, which is the chance that bond prices overall will decline
over short and long-term periods due to rising interest rates.
Income risk, which is the chance that declining interest rates will reduce the
amount of income paid by the Fund. Income risk is generally moderate for short
and intermediate-term bonds.
8
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Call risk, which is the chance that during declining interest rates, the bond
issuer will call or prepay a high-yielding bond before the bond's maturity date.
This would force the Fund to purchase lower yielding bonds which would reduce
the income generated from the portfolio and could potentially result in capital
gains paid out by the Fund.
Manager risk, which is the chance that the Manager's security selection strategy
may cause the Fund to underperform other mutual funds with similar investment
objectives.
PERFORMANCE
Performance results have not been provided because the Fund has not been in
existence for a full fiscal year.
FEES & EXPENSES
The following table describes what you would expect to pay as a Fund investor.
The Fund's annual operating expenses are paid from the Fund's assets.
- --------------------------------------------------------------------------------
SHAREHOLDER FEES
Sales and redemption charges none
ANNUAL OPERATING EXPENSES
Management fees 0.50%
12b-1 fees none
other expenses** 0.10%
TOTAL ANNUAL OPERATING EXPENSES 0.60%
Expense reduction 0.10%
Net Operating Expenses 0.50%
The manager has limited the fund's expenses at 0.50% since the Fund's inception.
This limitation is guaranteed though 12/31/00.
** Other expenses are based on estimated amounts for the current fiscal year.
- --------------------------------------------------------------------------------
9
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EXAMPLE OF FEES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The table below shows what you
would pay in expenses over time, whether or not you sold shares at the end of
each period. It assumes a $10,000 initial investment, 5% total return each year
and no changes in expenses. This example is for comparison purposes only. It
does not necessarily represent the Fund's actual expenses or returns.
ONE YEAR THREE YEARS
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$953 $165
FUND MANAGEMENT
The Investment Manager for the Funds is CCM Partners, 44 Montgomery Street,
Suite 2100, San Francisco, CA 94104. As the Portfolio Manager, CCM Partners
oversees the asset management and administration of the Funds. As compensation
for these services, CCM Partners receives a management fee from each Fund. The
contractual advisory fees are 0.50% for the Short-Term U.S. Government Bond Fund
and the Nasdaq-100 Index Fund and 0.75% for the European Growth & Income Fund.
The contractual rates are used because the Funds have not operated for a full
fiscal year.
Roderick G. Baldwin is the portfolio manager for the Nasdaq-100 Index and the
European Growth & Income Funds. He joined CCM Partners in 1999. Prior to his
employment with CCM Partners, he was Vice President of Index Investing at Bank
of America Capital Management. Mr. Baldwin graduated from Hamilton College in
1968 and earned his MBA from Wharton in 1970. He has approximately 30 years of
experience with equity fund management.
Michael J. Conn is the portfolio manager for the Short-Term U.S. Government Bond
Fund. Mr. Conn joined CCM Partners in 1996 and prior to his joining the firm,
spent several years working for Gruntal & Co. specializing in trading and
institutional sales of various fixed income securities. Mr. Conn graduated from
the Leavy School of Business at Santa Clara University.
ADDITIONAL INVESTMENT RELATED RISKS
THE EURO
Several European countries, including Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain,
adopted a single uniform currency known as the "euro," effective January 1,
1999. During the transition, the euro
10
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conversion could have potential adverse effects on the European Growth & Income
Fund's ability to value its portfolio holdings in foreign securities, and could
increase Fund operating expenses. The Fund and the Manager are working with the
providers of services to the Fund in the areas of clearance and settlement of
trades in an effort to avoid any material impact on the Fund due to the euro
conversion. There can be no assurance, however, the steps taken by the Fund or
the Manager will be sufficient to avoid any adverse impact on the Fund.
PORTFOLIO TURNOVER
The Funds generally intend to purchase securities for long-term investments
rather than short-term gains. However, a security may be held for a shorter than
expected period of time if, among other things, the Manager needs to raise cash
or feels that it is appropriate to do so. Also, portfolio holdings may be sold
sooner than anticipated due to unexpected changes in the markets. Buying and
selling securities generally involve some expenses to a Fund, such as
commissions paid to brokers and other transaction costs. By selling a security,
a Fund may realize taxable capital gains that it will subsequently distribute to
shareholders. Generally speaking, the higher a Fund's annual portfolio turnover,
the greater its brokerage costs and the greater likelihood that it will realize
taxable capital gains. Increased brokerage costs may affect a Fund's
performance. Also, unless you are a tax-exempt investor or you purchase shares
through a tax-deferred account, the distributions of capital gains may affect
your after-tax return. Annual portfolio turnover of 100% or more is considered
high.
OPENING AN ACCOUNT
Shares of the Funds may be purchased through the Funds' distributor or through
other third party distributors, brokerage firms and retirement plans. The
following information is specific to buying directly from the Funds'
distributor. If you invest through a third party distributor, many of the
policies, options and fees charged for the transaction may be different. You
should contact them directly for information regarding how to invest or redeem
through them.
You'll find all the necessary application materials included in the packet
accompanying this Prospectus or you may download an investment kit by accessing
our Web site at WWW.CALTRUST.COM. Additional paperwork may be required from
corporations, associations, and certain other fiduciaries. The minimum initial
investments and subsequent investments for each Fund are listed below.
MINIMUM MINIMUM
INITIAL SUBSEQUENT IRA
FUND INVESTMENT INVESTMENT MINIMUM
---- ---------- ---------- -------
Nasdaq-100 Fund $5,000 $250 none
European Fund $5,000 $250 none
Short-Term U.S. Gov't Bond Fund $10,000 $250 none
12
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The Fund's distributor may change the minimum investment amounts at any time or
waive them at its discretion. To protect against fraud, it is the policy of the
Funds not to accept third party checks for the purposes of opening new accounts
or purchasing additional shares. If you have any questions concerning the
application materials, wire transfers, or our yields and net asset values,
please call us, toll-free at (800) 225-8778. If you have any questions about our
investment policies and objectives, please call us at (415) 398-2727 or (800)
225-8778.
BUYING & SELLING SHARES
If you need an account application call us at (800) 225-8778 or down load an
investment kit from our web site at www.CALTRUST.COM. Keep in mind the following
important policies:
A Fund may take up to 7 days to pay proceeds.
If your shares were recently purchased by check, the Fund will not release
your proceeds until payment of the check can be verified which may take up
to 15 days.
Exchange purchases must meet minimum investment amounts of the Fund you are
purchasing.
You must obtain and read the prospectus for the Fund you are buying prior
to making the exchange.
If you have not selected the convenient exchange privileges on your
original account application, you must provide a signature guarantee letter
of instruction to the Fund, directing any changes in your account.
The Manager may refuse any purchase or exchange purchase transaction for
any reason.
HOW TO BUY SHARES
INITIAL PURCHASE - Make your check payable to the name of Fund in which you are
investing and mail it with the application to the address indicated. Please note
the minimum initial investments listed above.
CALIFORNIA INVESTMENT TRUST FUND GROUP
44 MONTGOMERY STREET SUITE 2100
SAN FRANCISCO CA 94104
PURCHASING BY EXCHANGE - You may purchase shares in a Fund by exchanging shares
from an account in one of our other Funds. Such exchanges must meet the minimum
amounts required for initial or subsequent investments described above. When
opening
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an account by exchanging shares, your new account must be established with the
same registration as your other California Investment Trust Fund Group account
and an exchange authorization must be in effect. If you have an existing account
with us, call (800) 225-8778 during normal business hours (8 AMto 5 PM, PST) to
exchange shares. You may also exchange shares by accessing our Web site at
WWW.CALTRUST.COM.
Each exchange actually represents the sale of shares of one Fund and the
purchase of shares in another, which may produce a gain or loss for tax
purposes. We will confirm each exchange transaction to you by mail.
Proceeds of redemption from shares of the Fund exchanged are used to purchase
the other Fund on the day the exchange is authorized (which must be prior to
market close, normally at 4:00 p.m., eastern time).
WIRE INSTRUCTIONS:
Federal funds should be wired to:
Firstar Bank Milwaukee, NA
ABA # 075000022
For: Firstar Mutual Fund Services. LLC
Account # 112-952-137
For further credit to:
Fund: ____________________________________________
Account Registration: _____________________________
Account Number: ___________________________________
If you are opening a new account by wire, you must first call California
Investment Trust Fund Group at (800) 225-8778 to obtain an account number.
In order to make your order effective, we must have federal funds available to
us at our bank. Accordingly, your purchase will be processed at the net asset
value next calculated after your investment has been converted to federal funds.
If you invest by check, or non-federal funds wire, allow approximately two
business days for conversion into federal funds. If you wire money in the form
of federal funds, your money will be invested at the share price next determined
after receipt of the wire. You will begin to earn dividends as of the first
business day following the day of your purchase.
All your purchases must be made in U.S. dollars and checks must be drawn on
banks located in the U.S. We reserve the right to limit the number of investment
checks processed at one time. If the check does not clear, we will cancel your
purchase, and you will be liable for any losses and fees incurred.
When you purchase by check, redemption proceeds will not be sent until we are
satisfied that the investment has been collected (confirmation of clearance may
take up to 15
14
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days). Payments by check or other negotiable bank deposit will normally be
effective within two business days for checks drawn on a member of the Federal
Reserve System and longer for most other checks. Wiring your money to us will
reduce the time you must wait before redeeming or exchanging shares. You can
wire federal funds from your bank, which may charge you a fee.
You may buy shares of a Fund through selected securities brokers. Your broker is
responsible for the transmission of your order to Firstar, the Fund's custodian,
and may charge you a fee. You will generally receive the share price next
determined after your order is placed with your broker, in accordance with your
broker's agreed upon procedures with the Fund. Your broker can advise you of
specific details.
If you wish, you may also deliver your investment checks (and application, for
new accounts) to the Trust's office. However, if you do so, please note that
your purchase will not be deemed received, nor will it be processed, until we
have forwarded it on your behalf to Firstar which, in turn, will deposit your
checks at the bank for conversion to federal funds.
The Funds do not consider the U.S. Postal Service or other independent delivery
service to be their agents. Therefore, deposit in the mail or with such delivery
services does not constitute receipt by Firstar or the Funds.
PURCHASING ADDITIONAL SHARES-Make your check payable to the name of the Fund in
which you are investing, write your account number on the check, and mail your
check with your confirmation stub to the address printed on your account
statement. There is a $250 minimum for subsequent investments.
AUTOMATIC SHARE ACCUMULATION PLAN
Under the Funds' Automatic Share Accumulation Plan (ASAP), you may arrange to
make additional purchases (minimum $250) of Fund shares automatically on a
monthly basis by electronic funds transferred from your checking account if the
bank which maintains the account is a member of the Automated Clearing House, or
by preauthorized checks drawn on your bank account. You may, of course,
terminate the program at any time. There is no fee to participate in this
program. However, a service fee of $20.00 will be deducted from your Fund
account for any ASAP purchase that does not clear due to insufficient funds, or
if prior to notifying the Fund in writing or by telephone to terminate the plan,
you close your bank account or in any manner that prevents withdrawal of the
funds from the designated checking or NOW account. Investors may obtain more
information concerning this program, including the application form, from the
Funds.
The market value of shares of the Funds is subject to fluctuation. Before
undertaking any plan for systematic investment, the investor should keep in mind
that such a program does not assure a profit or protect against a loss.
15
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We reserve the right to suspend the offering of shares of any of the Funds for a
period of time and to reject any specific purchase order in whole or in part.
Subsequent investments should be payable to the Fund and list your account
number in the memo portion of your check. Please note that orders to buy sell or
exchange become irrevocable when they are mailed to the Funds. After setting up
your online account, you may obtain a history of transactions for your account
(s) by accessing our Web site at WWW.CALTRUST.COM.
HOW FUND SHARES ARE PRICED
The Funds are open for business every day that both the New York Stock Exchange
(NYSE) and the Federal Reserve Bank of New York are open. The net asset value of
each Fund is computed by adding all of its portfolio holdings and other assets,
deducting its liabilities, and then dividing the result by the number of shares
outstanding in that Fund. Our Shareholder Servicing Agent usually calculates
this value at market close, normally 4:00 p.m. eastern time or 1:00 p.m. pacific
time, on each day that the NYSE is open. The number of shares your money buys
reflects the per share price of the Fund you are buying on the day your
transaction takes place. Orders that are received in good order are executed at
the next share price to be calculated. The Federal Fund's net asset value will
not be calculated nor transactions processed on certain holidays observed by
national banks and/or our Shareholder Servicing Agent (Martin Luther King's
Birthday, Presidents Day, Columbus Day and Veterans Day) in addition to those
days on which the NYSE is closed.
The share prices of the Funds will vary over time as interest rates and the
value of their securities vary. Portfolio securities of the European Growth &
Income Fund and The Nasdaq-100 Fund that are listed on a national exchange are
valued at the last reported sale price. U.S. Treasury Bills are valued at
amortized cost, which approximates market value. Portfolio securities of the
Short-Term U.S. Government Bond Fund are valued by an independent pricing
service that uses market quotations representing the latest available bid price,
prices provided by market makers, or estimates of market values obtained from
yield data relating to instruments or securities with similar characteristics.
Securities with remaining maturities of 60 days or less are valued on the
amortized cost basis as reflecting fair value. All other securities are valued
at their fair value as determined in good faith by the Board of Trustees.
The share price of the Funds are reported by the National Association of
Securities Dealers, Inc. in the mutual funds section of most newspapers after
the heading "California Trust".
PERFORMANCE INFORMATION
All performance information published in advertisements, sales literature and
commu-
16
<PAGE>
nications to investors, including various expressions of current yield,
effective yield, tax equivalent yield, total return and distribution rate, is
calculated and presented in accordance with the rules prescribed by the
Securities and Exchange Commission.
In each case, performance information will be based on past performance and will
reflect all recurring charges against Fund income. Performance information is
based on historical data and does not indicate the future performance of any
Fund.
HOW TO SELL SHARES
BY MAIL
You may redeem all or a portion of your shares on any business day that the NYSE
is open. Your shares will be redeemed at the net asset value next calculated
after we have received your redemption request in proper form (see below).
Remember that we may hold redemption proceeds until we are satisfied that we
have collected the funds which were made by check. To avoid these possible
delays, which could be up to 15 days, you should consider making your investment
by wire, following the instructions on page 14.
Send a "letter of instruction" specifying the name of the Fund, the number of
shares to be sold, your name, your account number, and the additional
requirements listed below that apply to your particular account to the address
noted above.
<TABLE>
<CAPTION>
Type of Registration Requirements
- -------------------- ------------
<S> <C>
Individual Letter of instruction signed by all person(s)
Joint Tenants Required to sign for the account, exactly as it
Tenants In Common Is registered, accompanied by signature guarantee(s).
Sole Proprietorship
Custodial Uniform Gifts to Minors Act
General Partners
Corporation Letter of instruction and a corporate resolution, signed
Association By person(s) required to sign for the account,
accompanied by signature guarantee(s).
Trust A letter of instruction signed by the Trustee(s), with a
signature guarantee. (If the Trustee's name is not regis-
tered on your account, also provide a copy of the trust
document, certified within the last 60 days.)
</TABLE>
17
<PAGE>
If you do not fall into any of these registration categories (e.g., Executors,
Administrators, Conservators, Guardians, etc.), please call us for further
instructions.
The Custodian requires that signature(s) be guaranteed by an eligible signature
guarantor such as a commercial bank, broker-dealer, credit union, securities
exchange or association, clearing agency or savings association.
BY CHECK
With checkwriting, our most convenient redemption procedure, your investment
will continue to earn income until the check clears your account. You must apply
for the checkwriting feature for your account. You may redeem by check provided
that the proper signatures you designated are on the check. The minimum amount
is $500. There is no charge for this service and you may write an unlimited
number of checks. You should not attempt to close your account by check, since
you cannot be sure of the number of shares and value of your account. Use the
wire redemption or mail redemption feature to close your account. The
checkwriting feature is not available for The Nasdaq-100 or the European Growth
& Income Funds. Please note a $20.00 fee will be charged to your account for any
returned check.
BY EXCHANGE
You must meet the minimum investment requirement of the Fund into which you are
exchanging shares. You can only exchange between accounts with identical
registration. Same day exchanges are accepted until market close, normally 4:00
p.m., eastern time (1:00 p.m., pacific time).
BY WIRE
You must have applied for the wire feature on your account. We will notify you
that this feature is active and you may then make wire redemptions by calling us
before 4:00 p.m. eastern time (1:00 p.m., pacific time). This means your money
will be wired to your bank the next business day. There is a charge for each
wire (currently $12.00).
ONLINE
You can sell shares in a regular account by accessing our Web site at
WWW.CALTRUST.COM. You may not buy or sell shares in an IRA account using our
online feature.
BY ELECTRONIC FUNDS TRANSFER
You must have applied for the EFT withdrawal feature on your account. Typically,
money sent by EFT will be sent to your bank within three business days after the
sales of your securities. There is no fee for this service.
BY TELEPHONE
Call the Funds at (800) 225-8778. Give the name of the Fund in which you are
redeeming shares, the exact name in which your account is registered, your
account number, the required identification number and the number of shares or
dollar amount that you wish to redeem. Telecommunications Device for the Deaf
(TDD) services for hearing
18
<PAGE>
impaired shareholders are available for telephone redemptions by calling (800)
864-3416.
Unless you submit an account application that indicates that you have declined
telephone exchange privileges, you agree, by signing your account application,
to authorize and direct the Funds to accept and act upon telephone, telex, fax,
or telegraph instructions for exchanges involving your account or any other
account with the same registration. The Funds employ reasonable procedures in an
effort to confirm the authenticity of telephone instructions, such as requiring
the caller to give a special authorization number. Provided these procedures are
followed, you further agree that neither a Fund nor the Transfer Agent will be
responsible for any loss, damage, cost or expense arising out of any telephone
instructions received for an account and to hold harmless the Custodian and the
Funds, any of their affiliates or mutual funds managed by such affiliates, and
each of their respective directors, trustees, officers, employees and agents
from any losses, expenses, costs or liabilities (including attorneys' fees) that
may be incurred in connection with these instructions or the exercise of the
telephone exchange privilege.
You should realize that by electing the telephone exchange option, you may be
giving up a measure of security that you might otherwise have if you were to
exchange your shares in writing. For reasons involving the security of your
account, telephone transactions may be tape recorded.
Retirement Plan shareholders should complete a Rollover-Distribution Election
Form.
SYSTEMATIC WITHDRAWAL PLAN
If you own shares of a Fund with a value of $10,000 or more, you may establish a
Systematic Withdrawal Plan. You may receive monthly or quarterly payments in
amounts of not less than $100 per payment. Details of this plan may be obtained
by calling the Funds.
OTHER REDEMPTION POLICIES
Once your shares are redeemed, we will normally send you the proceeds within one
day but not later than within seven days. When the NYSE is closed (or when
trading is restricted) for any reason other than its customary weekend or
holiday closings, or under any emergency circumstances as determined by the
Securities and Exchange Commission to merit such action, we may suspend
redemption or postpone payment dates. If you want to keep your account(s) open,
please be sure that the value of your account in the Funds does not fall below
$5,000 ($1,000 in the case of Stock Funds) because of redemptions. The Manager
may elect to close an account and mail you the proceeds to the address we have
on record. We will give you 30 days' written notice that your account(s) will be
closed unless you make an investment to increase your account balance(s) to the
$5,000 minimum ($1,000 in the case of the Stock Funds). If you close your
account, any accrued dividends will be paid as part of your redemption proceeds.
19
<PAGE>
The share prices of the Funds will fluctuate and you may receive more or less
than your original investment when you redeem.
THE FUNDS AND THE MANAGER RESERVE CERTAIN RIGHTS, INCLUDING THE FOLLOWING:
To automatically redeem your shares if your account balance falls below $5,000
due to the sale of shares.
To modify or terminate the exchange privilege on 60 days written notice.
To refuse any purchase or exchange order. To change or waive a funds minimums.
To suspend the right to sell shares back to the fund, and delay sending
proceeds, during times when trading on the NYSE is restricted or halted, or
otherwise as permitted by the SEC
To withdraw or suspend any part of the offering made by this prospectus.
OTHER POLICIES
TAX-SAVING RETIREMENT PLANS
We can set up your new account in a Fund under one of several tax-sheltered
plans. The following plans let you save for your retirement and shelter your
investment earnings from current taxes:
IRAs/Roth IRAs: You can also make investments in the name of your spouse, if
your spouse has no earned income. Each Fund is subject to an annual bank
maintenance fee, currently $12.50 with a maximum annual charge of $25.00 per
social security number. This fee is assessed annually in September of each year.
SIMPLE, SEP, 401(k)/Profit-Sharing and Money-Purchase Plans (Keogh): Open to
corporations, self-employed people and partnerships, to benefit themselves and
their employees.
403(b) Plans. Open to eligible employees of certain states and non-profit
organizations.
We can provide you with complete information on any of these plans which
discusses benefits, provisions and fees.
CASH DISTRIBUTIONS
Unless you otherwise indicate on the account application, we will reinvest all
dividends and capital gains distributions as applicable for your account in
additional shares of the Fund from which they are distributed. On the
application you may indicate by checking the appropriate box that you wish to
receive either income dividends or capital gains distributions in cash.
Electronic Funds Transfer (EFT) is available to those investors who would like
their dividends electronically transferred to their personal accounts. For those
investors who do not request this feature, dividend checks will be mailed via
regular
20
<PAGE>
mail. If you elect to receive distributions by mail and the U.S. Postal Service
cannot deliver your checks, we will void such checks and reinvest your money in
your account at the then current net asset value and reinvest your subsequent
distributions.
STATEMENT AND REPORTS
Investors who own solely The Nasdaq-100 and the European Growth & Income Fund
shares will receive statements at least quarterly and after every transaction
that affects their share balance and/or account registration. A statement with
tax information will be mailed to you by January 31 of each year, a copy of
which will be filed with the IRS if it reflects any taxable distributions. Twice
a year you will receive our financial statements, at least one of which will be
audited.
The account statements you receive will show the total number of shares of a
Fund owned by you. You may rely on these statements in lieu of share
certificates which are not necessary and will not be issued. You should keep
statements you receive after you buy or sell shares to assist in recordkeeping
and tax calculations.
We pay for regular reporting services, but not for special services, such as a
request for an historical transcript of an account. You may be required to pay a
separate fee for these special services. After setting up your online account,
you may also obtain a transaction history for your account (s) by accessing our
Web site at WWW.CALTRUST.COM.
CONSOLIDATED MAILINGS
In an effort to reduce mailing costs, consolidated statements will be sent to
each registrant. Consolidated statements include a summary of all Funds held by
each registrant as identified by the first line of registration, social security
number and address zip code. Consolidated statements offer convenience to
investors by summarizing account information and reducing unnecessary mail. If
you do not wish this consolidation to apply to your account(s), please notify
the Funds of this in writing.
DIVIDEND & TAXES
Any investment in the Funds typically involves several tax considerations. The
information below is meant as a general summary for U.S.citizens and residents.
Because your situation may be different, it is important that you consult your
tax advisor about the tax implications of your investment in any of the Funds.
As a shareholder, you are entitled to your share of the dividends your Fund
earns. The Short-Term U.S. Government Bond Fund distributes substantially all
the investment income monthly. The Nasdaq-100 and European Growth & Income Funds
pay their dividends on the last business day of each quarter (March, June,
September &December). To be eligible for the dividend, you must be a shareholder
of record on the record date, which is the second to last business day of the
quarter. Each Fund's net investment income and short-term capital gains are
distributed as dividends and
21
<PAGE>
are taxable as ordinary income. Other capital gain distributions are taxable as
long-term capital gains, regardless of how long you have held your shares in a
Fund. Distributions generally are taxable in the tax year in which they are
declared, whether you reinvest them or take them in cash. Generally, any sale of
your shares is a taxable event. A sale may result in a capital gain or loss for
you. The gain or loss generally will be treated as short-term if you held the
shares for 12 months or less and long-term if you held the shares longer. For
tax purposes, an exchange between Funds is considered a sale and a purchase.
At the beginning of every year, the Funds provide shareholders with information
detailing the tax status of any distributions the Funds paid during the previous
calendar year.
22
<PAGE>
TO LEARN MORE
This prospectus contains important information on the Funds and should be read
and kept for future reference. You can also get more information from the
following sources:
ANNUAL AND SEMI-ANNUAL REPORTS
These are automatically mailed to all shareholders without change. In the Annual
Report, you will find a discussion of market conditions and investment
strategies that significantly affected each Fund's performance during its most
recent fiscal year. You may request a copy by contacting the Funds.
STATEMENT OF ADDITIONAL INFORMATION
This includes more details about the Funds, including a detailed discussion of
the risks associated with the various investments. The SAIis incorporated by
reference into this prospectus, making it a legal part of the prospectus.
You can obtain a free copy of these documents by calling the Funds at (800)
225-8778, visiting our web site at www.CALTRUST.COM, or by contacting the SEC.
The SEC may charge you a duplication fee. You can also review these documents in
person at the SEC's Public Reference Room, or by visiting the SEC's Internet
Site at www.sec.gov.
CALIFORNIA INVESTMENT TRUST FUND GROUP
44 MONTGOMERY STREET SUITE 2100
SAN FRANCISCO CA 94104
(800) 225-8778
WWW.CALTRUST.COM
Securities andExchange Commission
Washington DC20549-6009
(800) SEC-0330 (Public Reference Section)
WWW.SEC.GOV
SEC File Number 811-5049
23
<PAGE>
CALIFORNIA INVESTMENT TRUST II
FORM N-1A
-------------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION
EUROPEAN GROWTH & INCOME FUND
NASDAQ-100 INDEX FUND
SHORT-TERM U.S. GOVERNMENT BOND FUND
-------------------------------
<PAGE>
CALIFORNIA INVESTMENT TRUST FUND GROUP
44 Montgomery Street, Suite 2100
San Francisco, California 94104
(800) 225-8778
Statement of Additional Information for the European Growth & Income Fund, the
Nasdaq-100 Index Fund and the Short-Term U.S. Government Bond Fund- January 18,
2000.
ABOUT THE CALIFORNIA INVESTMENT TRUST FUND GROUP
The California Investment Trust Fund Group currently consists of two
diversified, open-end management investment companies: California Investment
Trust ("CIT") and California Investment Trust II ("CIT II") (each a "Trust" and
collectively, the "Trusts"). Each Trust was organized as a Massachusetts
Business Trust on September 11, 1985. The Agreement and Declaration of Trust for
each Trust permits the Trustees to issue an unlimited number of full and
fractional shares of beneficial interest without par value, which may be issued
in any number of series (called Funds). Such shares have no preemptive,
conversion, or sinking rights. You have equal and exclusive rights to dividends
and distributions declared by your Fund and to the net assets of your Fund upon
liquidation or dissolution.
This Statement of Additional Information relates to the following series of
CIT II (herein referred to as the "Trust"): Short-Term U.S. Government Bond
Fund("Short-Term Government Fund"), The Nasdaq-100 Index Fund ("Nasdaq-100
Fund"), and the European Growth & Income Fund ("The European Fund").
Collectively, the Nasdaq-100 Fund and European Fund are sometimes referred to
herein as the "Stock Funds" and together with the Short-Term Government Fund as
the "Funds".
As a business trust, the Trust is not required, nor does it intend, to hold
annual shareholder meetings. However, the Trust may hold special meetings for a
specific Fund or the Trust as a whole for purposes such as electing Trustees,
changing fundamental policies, or approving an investment management agreement.
You have equal rights as to voting and to vote separately by Fund as to issues
affecting only your Fund (such as changes in fundamental investment policies and
objectives). Your voting rights are not cumulative, so that the holders of more
than 50% of the shares voting in any election of Trustees can, if they choose to
do so, elect all of the Trustees. Meetings of shareholders may be called by the
Trustees in their discretion or upon demand of the holders of 10% or more of the
outstanding shares of any Fund for the purpose of electing or removing Trustees.
The Board of Trustees may from time to time offer other Funds of the Trust,
the assets and liabilities of which will likewise be separate and distinct from
any other Fund of the Trust. Although this offering of shares of each of the
Funds constitutes a separate and distinct offering of such shares, it is
possible that a Fund might become liable for any misstatements of or omissions
from the Prospectus or the Statement of Additional Information about one of the
other Funds. The Board of Trustees of the Trust has considered this factor with
respect to the Trust in approving the use of a single, combined Prospectus and a
joint Statement of Additional Information for all of the Funds.
The combined Prospectus for the Funds dated January 18, 2000, as may be
amended from time to time, provides the basic information you should know before
investing in a Fund, and may be obtained without charge from the Funds at the
above address. This Statement of Additional Information is not a prospectus. It
contains information in addition to and in more detail than set forth in the
Prospectus. This Statement of Additional Information is intended to provide you
with additional information regarding the activities and operations of the Trust
and each Fund, and should be read in conjunction with the Prospectus.
<PAGE>
CONTENTS Page
About the California Investment Trust Fund Group ........................ B-1
Investment Objectives and Policies of the Short-Term Government Fund .... B-3
Investment Objectives and Policies of the Stock Funds ................... B-4
Description of Investment Securities and Portfolio Techniques ........... B-4
American Depository Receipts (ADRS) ..................................... B-7
Securities & Other Investment Companies - Closed End Funds .............. B-8
Investment Restrictions ................................................. B-8
Trustees and Officers ................................................... B-10
Investment Management and Other Services ................................ B-11
Policies Regarding Broker-Dealers Used for Portfolio Transactions ....... B-14
Additional Information Regarding Purchases and
Redemptions of Fund Shares ........................................... B-15
Taxation ................................................................ B-16
How are Dividends, Distributions & Taxes Handled ........................ B-17
Yield Disclosure and Performance Information ............................ B-19
Miscellaneous Information ............................................... B-20
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE SHORT-TERM GOVERNMENT FUND
The following information supplements the investment objectives and basic
policies of the Fund as set forth in the Prospectus.
The Fund will typically invest in short-and intermediate-term bills, notes
and bonds whose principal and interest are backed by the full faith and credit
of the United States Federal Government. In addition, the Manager may invest in
higher yielding securities which are not backed by the full faith and credit of
the U.S. Federal Government. The Fund intends to maintain a short-term maturity
in an effort to reduce share price volatility.
A Government National Mortgage Association ("GNMA") Certificate differs
from a bond in that principal is scheduled to be paid back by the borrower over
the length of the loan rather than returned in a lump sum at maturity. The Fund
will purchase "modified pass-through" type GNMA Certificates for which the
payment of principal and interest on a timely basis is guaranteed, rather than
the "straight-pass through" Certificates for which such guarantee is not
available. The Fund may also purchase "variable rate" GNMA Certificates or any
other type which may be issued with GNMA's guarantee. The balance of the Fund's
assets is invested in other securities issued or guaranteed by the U.S. Federal
Government, including U.S. Treasury bills, notes, and bonds.
Securities of the type to be included in the Fund have historically
involved little risk of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period of a shareholder's investment in the Fund.
GNMA Certificates are created by an "issuer," which is a Federal Housing
Administration ("FHA") approved lender, such as mortgage bankers, commercial
banks and savings and loan associations, who also meet criteria imposed by GNMA.
The issuer assembles a specific pool of mortgages insured by either the FHA or
the Farmers Home Administration or guaranteed by the Veterans Administration.
Upon application by the issuer, and after approval by GNMA of the pool, GNMA
provides its commitment to guarantee timely payment of principal and interest on
the GNMA Certificates secured by the mortgages included in the pool.
The GNMA Certificates, endorsed by GNMA, are then sold by the issuer
through securities dealers. The GNMA guarantee of timely payment of principal
and interest on GNMA Certificates is backed by the full faith and credit of the
United States Federal Government. GNMA may borrow U.S. Treasury Funds to the
extent needed to make payments under its guarantee.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagees or by result of foreclosure, such principal payments are passed
through to the Certificate holders (such as the Fund). Accordingly, the life of
the GNMA Certificate is likely to be substantially shorter than the stated
maturity of the mortgages in the underlying pool. Because of such variation in
prepayment rights, it is not possible to predict the life of a particular GNMA
Certificate, but FHA statistics indicate that 25 to 30 year single-family
dwelling mortgages have an average life of approximately 12 years.
Generally, GNMA Certificates bear a nominal "coupon rate" which represents
the effective FHA-Veterans Administration mortgage rates for the underlying pool
of mortgages, less GNMA and issuer's fees. Payments to holders of GNMA
Certificates consist of the monthly distributions of interest and principal less
the GNMA and issuer's fees. The actual yield to be earned by the holder of a
GNMA Certificate is calculated by dividing such payments by the purchase price
paid for the GNMA Certificate (which may be at a premium or a discount from the
face value of the Certificate). Monthly distributions of interest, as contrasted
to semi-annual distributions which are common for other fixed interest
investments, have the effect of compounding and thereby raising the effective
annual yield earned on GNMA Certificates.
The portion of the payments received by the Fund as a holder of the GNMA
Certificates which constitutes a return of principal is added to the Fund's cash
available for investment in additional GNMA Certificates or other U.S.
Government guaranteed securities. The interest portion received by the Fund is
distributed as net investment income to the Fund's shareholders.
B-3
<PAGE>
The Manager continually monitors the Fund's investments, and changes are
made as market conditions warrant. However, the Fund typically does not engage
in the trading of securities for the purpose of realizing short-term profits.
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS
As stated in the Prospectus, the investment objective of the Nasdaq-100
Fund is to seek to replicate performance of the largest and most actively traded
non-financial stocks as measured by The Nasdaq-100 Stock Index. Companies
included in the Index range from $516 million to $478 billion in market
capitalization as of November 1, 1999. The median market capitalization of the
stocks in the Index is approximately $6 billion. The majority of portfolio
transactions in the Fund (other than those made in response to shareholder
activity) will be made to adjust the Fund's portfolio to track the Index or to
reflect occasional changes in the index's composition.
The investment objective of the European Fund is to provide long-term
capital appreciation and income by investing in large sized European companies
located in Western Europe. The Fund will primarily invest in ADRs that trade on
U.S. equity exchanges, and typically does not invest directly in non-U.S.,
dollar-denominated equity securities of foreign companies.
DESCRIPTION OF INVESTMENT SECURITIES AND PORTFOLIO TECHNIQUES
U.S. Government Obligations, Other Securities and Portfolio Techniques
U.S. Government Obligations. U.S. Treasury obligations are issued by the
U.S. Treasury and include U.S. Treasury bills (maturing within one year of the
date they are issued), certificates of indebtedness, notes and bonds (issued
with maturities longer than one year). Such obligations are backed by the full
faith and credit pledge of the U.S. Government. Agencies and instrumentalities
of the U.S. Government are established under the authority of Congress and
include, but are not limited to, the GNMA, the Tennessee Valley Authority, the
Bank for Cooperatives, the Farmer's Home Administration, The Federal Home Loan
Banks, the FHA, The Federal Intermediate Credit Banks, The Federal Land Banks
and the Federal National Mortgage Association. Obligations are issued by such
agencies or instrumentalities in a range of maturities and may be either (1)
backed by the full faith and credit pledge of the U.S. Government, or (2) backed
only by the rights of the issuer to borrow from the U.S. Treasury. The Funds may
only invest in obligations backed by the full faith and credit of the U.S.
Government. Repurchase Transactions. The Short-Term Government Fund and the
Stock Funds may enter into repurchase agreements with government securities
dealers recognized by the Federal Reserve Board or with member banks of the
Federal Reserve System. Such a transaction is an agreement in which the seller
of U.S. Government securities agrees to repurchase the securities sold to a Fund
at a mutually agreed upon time and price. It may also be viewed as the loan of
money by a Fund to the seller. The resale price normally is in excess of the
purchase price, reflecting an agreed upon interest rate. The rate is effective
for the period of time in the agreement and is not related to the coupon rate on
the underlying security. The period of these repurchase agreements is usually
short, from overnight to one week, and in particular, at no time will the
Short-Term Government Fund invest in repurchase agreements with a term of more
than one year. U.S. Government securities which are subject to repurchase
agreements, however, may have maturity dates in excess of one year from the
effective date of the repurchase agreement. A Fund always receives as collateral
U.S. Government securities whose market value, including accrued interest, is at
least equal to 100% of the dollar amount invested by a Fund in each agreement,
and such Fund makes payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of its custodian. If the seller
defaults, a Fund might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. A Fund may not enter into a repurchase
agreement with more than seven days to maturity if, as a result, more than 10%
of the market value of that Fund's total assets would be invested in such
repurchase agreements. With respect to the Short-Term Government Fund, the
Manager, on an ongoing basis, will review and monitor the creditworthiness of
institutions with which it has entered into repurchase agreements. The current
policy of the Funds is to limit repurchase agreements to those parties whose
creditworthiness has been reviewed and found satisfactory by the Manager.
B-4
<PAGE>
When-Issued Purchases and Forward Commitments. New issues of U.S.
Government securities and municipal securities may be offered on a when-issued
basis. Accordingly, the Short-Term Government Fund may purchase securities on a
when-issued or forward commitment basis. When-issued purchases and forward
commitments involve a commitment by the Fund to purchase securities at a future
date. The price of the underlying securities (usually expressed in terms of
yield) and the date when the securities will be delivered and paid for (the
settlement date) are fixed at the time the transaction is negotiated.
The value of the securities underlying a when-issued purchase or a forward
commitment to purchase securities, and any subsequent fluctuations in their
value, is taken into account when determining the Fund's net asset value
starting on the day the Fund agrees to purchase the securities. Therefore, if
the Fund remains substantially fully invested at the same time that it has
committed to purchase securities on a when-issued or forward commitment basis,
its net asset value per share may be subject to greater price fluctuation. The
Fund does not earn interest on the securities it has committed to purchase until
they are paid for and delivered on the settlement date. Settlement of
when-issued purchases and forward commitments generally takes place within two
months of the date of the transaction, but delayed settlements beyond two months
may be negotiated.
The Fund makes commitments to purchase securities on a when-issued or
forward commitment basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy, however, the Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases, the Fund may realize a capital
gain or loss.
When the Fund enters into a when-issued purchase or a forward commitment to
purchase securities, the Fund's custodian, Firstar Trust Company (the
"Custodian"), will establish, and maintain on a daily basis, a separate account
of the Fund consisting of cash or portfolio securities having a value at least
equal to the amount of the Fund's purchase commitments. These procedures are
designed to insure that the Fund maintains sufficient assets at all times to
cover its obligations under when-issued purchases and forward commitments.
Lending Portfolio Securities. The Stock Funds may lend up to 100% of their
portfolio securities to non-affiliated brokers, dealers, and financial
institutions provided that cash or U.S. Government securities equal to 100% of
the market value of the securities loaned is deposited by the borrower with the
lending Fund and is maintained each business day. Although the Stock Funds have
no current intention to do so, each Stock Fund may lend up to 10% of its
portfolio securities to non-affiliated brokers, dealers and financial
institutions provided that cash or U.S. Government securities equal to 100% of
the market value of the securities loaned is deposited by the borrower with the
lending Fund and is maintained each business day. While such securities are on
loan, the borrower will pay such Fund any income accruing thereon, and the Fund
may invest or reinvest the collateral (depending on whether the collateral is
cash or U.S. Government securities) in portfolio securities, thereby earning
additional income. The lending Fund will continue to retain any voting rights
with respect to the securities loaned. Each Fund will not lend its portfolio
securities if such loans are not permitted by the laws or regulations of any
state in which its shares are qualified for sale. Loans are typically subject to
termination by a Fund in the normal settlement time, currently five business
days after notice, or by the borrower on one day's notice. Borrowed securities
must be returned when the loan is terminated. Any gain or loss in the market
price of the borrowed securities which occurs during the term of the loan inures
to the lending Fund and its shareholders. A Fund may pay reasonable finders',
borrowers', administrative, and custodial fees in connection with a loan of its
securities. The Manager will review and monitor the creditworthiness of such
borrowers on an ongoing basis.
Stock Index Futures Contracts. The Stock Funds may enter into agreements to
"buy" or "sell" a stock index at a fixed price at a specified date. No stock
actually changes hands under these contracts; instead, changes in the underlying
index's value are settled in cash. The cash settlement amounts are based on the
difference between the index's current value and the value contemplated by the
contract. An option on a stock index futures contract is an agreement to buy or
sell an index futures contract; that is, exercise of the option results in
ownership of a position in a futures contract. Most stock index futures are
based on broad-based common stocks, such as the S&P 500 Index and the S&P MidCap
Index, both registered
B-5
<PAGE>
trademarks of Standard & Poor's Corporation. Other broad-based indices include
the New York Stock Exchange Composite Index, S&P BARRA/Value, Russell 2000,
Value Line Composite Index, Standard & Poor's 100 Stock Index, The Nasdaq-100
Index, Dow Jones Euro Stoxx, and the MSCI (Morgan Stanley Capital International)
Euro Index.
Additionally, each Stock Fund may take advantage of opportunities in the
area of futures contracts and options on futures contracts and any other
derivative investments which are not presently contemplated for use by such Fund
or which are not currently available but which may be developed, to the extent
such opportunities are both consistent with each Stock Fund's investment
objective and legally permissible for such Fund. Before entering into such
transactions or making any such investment, the Fund will provide appropriate
disclosure in its Prospectus.
Because the value of index futures depends primarily on the value of their
underlying indices, the performance of broad-based contracts will generally
reflect broad changes in common stock prices. Each Fund's investments may be
more or less heavily weighted in securities of particular types of issuers, or
securities of issuers in particular industries, than the indices underlying its
index futures positions. Therefore, while a Fund's index futures positions
should provide exposure to changes in value of the underlying indices (or
protection against declines in their value in the case of hedging transactions),
it is likely that, in the case of hedging transactions, the price changes of a
Fund's index futures positions will not match the price changes of that Fund's
other investments. Other factors that could affect the correlation of a Fund's
index futures positions with its other investments are discussed below.
Futures Margin Payments. Both the purchaser and seller of a futures
contract are required to deposit "initial margin" with a futures broker (known
as a "futures commission merchant," or "FCM"), when the contract is entered
into. Initial margin deposits are equal to a percentage of the contract's value,
as set by the exchange where the contract is traded, and may be maintained in
cash or high quality liquid securities. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments to settle the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. Initial and
variation margin payments are similar to good faith deposits or performance
bonds, unlike margin extended by a securities broker, and initial and variation
margin payments do not constitute purchasing securities on margin for purposes
of a Fund's investment limitations. In the event of the bankruptcy of a FCM that
holds margin on behalf of a Fund, that Fund may be entitled to return of margin
owed to it only in proportion to the amount received by the FCM's other
customers. The Manager will attempt to minimize this risk by monitoring the
creditworthiness of the FCMs with which the Stock Funds do business.
Limitations on Stock Index Futures Transactions. Each Stock Fund has filed
a notice of eligibility for exclusion from the definition of the term "commodity
pool operator" with the Commodity Futures Trading Commission (the "CFTC") and
the National Futures Association, which regulate trading in the futures markets.
Pursuant to Section 4.5 of the regulations under the Commodity Exchange Act,
each Fund may use futures contracts for bona fide hedging purposes within the
meaning of CFTC regulations; provided, however, that, with respect to positions
in futures contracts which are not used for bona fide hedging purposes within
the meaning of CFTC regulations, the aggregate initial margin required to
establish such position will not exceed five percent of the liquidation value of
each Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any such contracts into which the Fund has entered.
The Manager also intends to follow certain other limitations on each of the
Stock Fund's futures activities. Under normal conditions, a Fund will not enter
into any futures contract if, as a result, the sum of (i) the current value of
assets hedged in the case of strategies involving the sale of securities, and
(ii) the current value of the indexes or other instruments underlying the Fund's
other futures positions would exceed 20% of such Fund's total assets (35% if
total Fund assets are below $25 million). In addition, each Fund does not intend
to enter into futures contracts that are not traded on exchanges or boards of
trade.
The above limitations on the Stock Funds' investments in futures contracts,
and Funds' policies regarding futures contracts discussed elsewhere in this
Statement of Additional Information, are not fundamental policies and may be
changed as regulatory agencies permit.
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<PAGE>
Each Stock Fund may purchase index futures contracts in order to attempt to
remain fully invested in the stock market. For example, if a Fund had cash and
short-term securities on hand that it wished to invest in common stocks, but at
the same time it wished to maintain a highly liquid position in order to be
prepared to meet redemption requests or other obligations, it could purchase an
index futures contract in order to approximate the activity of the index with
that portion of its portfolio. Each Stock Fund may also purchase futures
contracts as an alternative to purchasing actual securities. For example, if a
Fund intended to purchase stocks but had not yet done so, it could purchase a
futures contract in order to participate in the index's activity while deciding
on particular investments. This strategy is sometimes known as an anticipatory
hedge. In these strategies a Fund would use futures contracts to attempt to
achieve an overall return -- whether positive or negative -- similar to the
return from the stocks included in the underlying index, while taking advantage
of potentially greater liquidity than futures contracts may offer. Although a
Fund would hold cash and liquid debt securities in a segregated account with a
value sufficient to cover its open future obligations, the segregated assets
would be available to the Fund immediately upon closing out the futures
position, while settlement of securities transactions can take several days.
When a Fund wishes to sell securities, it may sell stock index futures
contracts to hedge against stock market declines until the sale can be
completed. For example, if the Manager anticipated a decline in common stock
prices at a time when a Fund anticipated selling common stocks, it could sell a
futures contract in order to lock in current market prices. If stock prices
subsequently fell, the futures contract's value would be expected to rise and
offset all or a portion of the anticipated loss in the common stocks the Fund
had hedged in anticipation of selling them. Of course, if prices subsequently
rose, the futures contract's value could be expected to fall and offset all or a
portion of any gains from those securities. The success of this type of strategy
depends to a great extent on the degree of correlation between the index futures
contract and the securities hedged.
Asset Coverage for Futures Positions. Each Stock Fund will comply with
guidelines established by the SEC with respect to coverage of futures strategies
by mutual funds, and if the guidelines so require will set aside cash and or
other appropriate liquid assets (e.g., U.S. Government Securities, other high
grade debt obligations, or other allowable securities) in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures or option strategy is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of a Fund's assets could impede portfolio
management or such Fund's ability to meet redemption requests or other current
obligations.
Correlation of Price Changes. As noted above, price changes of a Stock
Fund's futures positions may not be well correlated with price changes of its
other investments because of differences between the underlying indexes and the
types of securities the Fund invests in. For example, if a Fund sold a
broad-based index futures contract to hedge against a stock market decline while
the Fund completed a sale of specific securities in its portfolio, it is
possible that the price of the securities could move differently from the broad
market average represented by the index futures contract, resulting in an
imperfect hedge which could affect the correlation between the Fund's return and
that of the respective benchmark index. In the case of an index futures contract
purchased by the Fund either in anticipation of actual stock purchases or in an
effort to be fully invested, failure of the contract to track its index
accurately could hinder such Fund in the achievement of its objective.
Stock index futures prices can also diverge from the prices of their
underlying indexes. Futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
index, and the time remaining until expiration of the contract, which may not
affect security prices the same way. Imperfect correlation may also result from
differing levels of demand in the futures markets and the securities markets,
from structural differences in how futures and securities are traded, or from
imposition of daily price fluctuation limits for futures contracts. A Fund may
sell futures contracts with a greater or lesser value than the securities it
wishes to hedge in order to attempt to compensate for differences in historical
volatility between the futures contract and the securities, although this may
not be successful in all cases.
Liquidity of Futures Contracts. Because futures contracts are generally
settled within a day from the date they are closed out, compared with a
settlement period of seven days for some types of securities, the futures
markets can provide liquidity superior to the securities markets in many cases.
Nevertheless, there is no assurance a liquid secondary market will exist for any
particular futures contract at any particular time. In addition, futures
exchanges may establish daily price fluctuation limits for futures
B-7
<PAGE>
contracts, and may halt trading if a contract's price moves upward or downward
more than the limit in a given day. On volatile trading days when the price
fluctuation limit is reached, it may be impossible for a Fund to enter into new
positions or close out existing positions. Trading in index futures can also be
halted if trading in the underlying index stocks is halted. If the secondary
market for a futures contract is not liquid because of price fluctuation limits
or otherwise, it would prevent prompt liquidation of unfavorable futures
positions, and potentially could require a Fund to continue to hold a futures
position until the delivery date regardless of potential consequences. If a Fund
must continue to hold a futures position, its access to other assets held to
cover the position could also be impaired.
American Depository Receipts (ADRS)
-----------------------------------
The European Fund typically invests in sponsored and unsponsored ADRs under
normal circumstances. Such investments may subject the Fund to significant
investment risks that are different from, and in addition to, those related to
investments of U.S. domestic issuers or in the U.S. markets. Unsponsored ADRs
may involve additional risks in that they are organized without the cooperation
of the issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as that for sponsored ADRs.
The value of securities denominated in or indexed to foreign currencies and
of dividends and interest from such securities can change significantly when
foreign currencies strengthen or weakened relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
the U.S. markets, and prices on some foreign securities can be highly volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those applicable to U.S. companies, and it may seem more difficult
to obtain reliable information regarding an issuer's financial conditions and
operations.
Settlement of transaction in some foreign markets may be delayed or may be
less frequent than in the U.S., which could affect the liquidity of the Fund's
investments. In addition, the cost of foreign investing, including withholding
taxes, brokerage commissions and custodial costs, are generally higher than for
U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of the broker-dealer,
which may result in substantial delays in settlement. It may also be more
difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restriction on U.S.
investments or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government sponsored enterprises.
Investments in foreign countries also involve the risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that the Manager will be able to
anticipate these potential events or counter their effects.
Securities of Other Investment Companies - Closed End Funds
-----------------------------------------------------------
The European Fund may purchase closed end funds that invest in foreign
securities. Unlike open-end investment companies, like the Fund, closed end
funds issue a fixed number of shares that trade on major stock exchanges or over
the counter. Additionally, closed-end funds do not stand ready to issue or
redeem on a continuous basis. Closed-end funds often sell at a discount to net
asset value.
INVESTMENT RESTRICTIONS
Except as noted with respect to a Fund, the Trust has adopted the following
restrictions as additional fundamental policies of its Funds, which means that
they may not be changed without the
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<PAGE>
approval of a majority of the outstanding voting securities of that Fund. Under
the Investment Company Act of 1940, as amended, ("1940 Act"), a "vote of a
majority of the outstanding voting securities" of the Trust or of a particular
Fund means the affirmative vote of the lesser of (l) more than 50% of the
outstanding shares of the trust or of such Fund, or (2) 67% or more of the
shares of the Trust or of such Fund present at a meeting of shareholders if more
than 50% of the outstanding shares of the trust or of such Fund are represented
at the meeting in person or by proxy. A Fund may not:
1. Borrow money or mortgage or pledge any of its assets, except that
borrowings (and a pledge of assets therefor) for temporary or emergency purposes
may be made from banks in any amount up to 10% (15% in the case of the Stock
Funds) of the Fund's total asset value. However, a Fund will not purchase
additional securities while the value of its outstanding borrowings exceeds 5%
of its total assets. Secured temporary borrowings may take the form of a reverse
repurchase agreement, pursuant to which a Fund would sell portfolio securities
for cash and simultaneously agree to repurchase them at a specified date for the
same amount of cash plus an interest component. (As a matter of operating
policy, the Funds currently do not intend to utilize reverse repurchase
agreements, but may do so in the future.)
2. Except as required in connection with permissible futures contracts
(Stock Funds only), buy any securities on "margin" or sell any securities
"short," except that it may use such short-term credits as are necessary for the
clearance of transactions.
3. Make loans, except (a) through the purchase of debt securities which are
either publicly distributed or customarily purchased by institutional investors,
(b) to the extent the entry into a repurchase agreement may be deemed a loan, or
(c) to lend portfolio securities to broker-dealers or other institutional
investors if at least 100% collateral, in the form of cash or securities of the
U.S. Government or its agencies and instrumentalities, is pledged and maintained
by the borrower.
4. Act as underwriter of securities issued by other persons except insofar
as the Fund may be technically deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.
5. With respect to 75% of its total assets, purchase the securities of any
one issuer (except securities issued or guaranteed by the U.S. Government and
its agencies or instrumentalities, as to which there are no percentage limits or
restrictions) if immediately after and as a result of such purchase (a) the
value of the holdings of the Fund in the securities of such issuer would exceed
5% of the value of the Fund's total assets, or (b) the Fund would own more than
10% of the voting securities of any such issuer (both the issuer of the
municipal obligation as well as the financial institution or intermediary shall
be considered issuers of a participation certificate).
6. Purchase securities from or sell to the Trust's officers and Trustees,
or any firm of which any officer or Trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, Trustees, or investment adviser own beneficially more than 1/2
of 1% of the securities of such issuer and all such officers and Trustees
together own beneficially more than 5% of such securities (non-fundamental for
the Stock Funds).
7. Acquire, lease or hold real estate, except such as may be necessary or
advisable for the maintenance of its offices, and provided that this limitation
shall not prohibit the purchase of securities secured by real estate or
interests therein.
8. (a) Invest in commodities and commodity contracts, or interests in
oil, gas, or other mineral exploration or development programs; provided,
however, that a Fund may invest in futures contracts as described in the
Prospectus and in this Statement of Additional Information (Stock Funds only).
(b) Invest in commodities and commodity contracts, puts, calls,
straddles, spreads, or any combination thereof, or interests in oil, gas, or
other mineral exploration or development programs, except that the Short-Term
Government Fund may purchase, hold, and dispose of "obligations with puts
attached" in accordance with its investment policies (except the Stock Funds).
B-9
<PAGE>
9. Invest in companies for the purpose of exercising control or management.
10. (a) Purchase securities of other investment companies, except to the
extent permitted by the 1940 Act and as such securities may be acquired in
connection with a merger, consolidation, acquisition, or reorganization (the
Stock Funds only).
(b) Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition, or reorganization (except
the Stock Funds).
11 . Purchase illiquid securities, including (under current SEC
interpretations) securities that are not readily marketable, and repurchase
agreements with more than seven days to maturity if, as a result, more than 10%
of the total assets of the Fund would be invested in such illiquid securities.
12. Invest 25% or more of its assets in securities of any one industry,
although for purposes of this limitation, tax-exempt securities and obligations
of the U.S. Government and its agencies or instrumentalities are not considered
to be part of any industry (both the industry of the issuer of the municipal
obligation as well as the industry of the financial institution/intermediary
shall be considered in the case of a participation certificate).
In addition, each Stock Fund has adopted the following restrictions as
operating policies, which are not fundamental policies, and may be changed
without shareholder approval in accordance with applicable regulations. Each
Stock Fund may not:
1. Engage in short sales of securities.
2. Invest in warrants, valued at the lower of cost or market, in excess of
5% of the value of a Fund's net assets. Included in such amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants that are not
listed on the New York Stock Exchange (the "NYSE") or American Stock Exchange.
Warrants acquired by a Fund in units or attached to securities may be deemed to
be without value.
3. Enter into a futures contract or option on a futures contract, if, as a
result thereof, more than 5% of the Fund's total assets (taken at market value
at the time of entering into the contract) would be committed to initial
deposits and premiums on open futures contracts and options on such contracts.
4. Except for The Nasdaq-100 Fund, invest more than 5% of its total assets
in the securities of companies (including predecessors) that have been in
continuous operation for a period of less than three years.
5. Invest in puts, calls, straddles or spread options, or any combination
thereof.
If a percentage restriction is adhered to at the time of investment, a
subsequent increase or decrease in a percentage resulting from a change in the
values of assets will not constitute a violation of that restriction, except as
otherwise noted.
TRUSTEES AND OFFICERS
The Trustees of the Trust have the responsibility for the overall
management of the Trust, including general supervision and review of its Funds'
investment activities. The Trustees elect the officers of the Trust who are
responsible for administering the day-to-day operations of the Trust and its
Funds. The affiliations of the officers and Trustees and their principal
occupations for the past five years are listed below. The Trustees and officers
of the Trust are identical. Trustees who are deemed to be an "interested person"
of the Trust, as defined in the 1940 Act, are indicated by an asterisk (*).
<TABLE>
<CAPTION>
Position and Offices Principal Occupation
Name and Address Age with the Trusts within the Past 5 years
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Stephen C. Rogers 32 President & Trustee Chief Executive Officer, CCM Partners
44 Montgomery Street 1999 to present; Chief Operating
Suite 2100 Officer, CCM Partners 1998 to 1999;
San Francisco, CA 94104 Administrative Officer, CCM Partners
1993-1998; Marketing Representative, CCM
Partners, 1992 to 1993.
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<PAGE>
*Phillip W. McClanahan 63 Vice President, Director of Investments, CCM Partners:
44 Montgomery Street Treasurer and 1984-1985: Vice President and Portfolio
Suite 2100 Trustee Manager, Transamerica Investment
San Francisco, CA 94104 Services: 1966-1984: Vice President and
Portfolio Manager, Fireman's Fund
Insurance Company and Amfire, Inc.
Harry Holmes 73 Trustee Principal, Harry Holmes & Associates
Del Ciervo at Midwood (consulting); 1982-1984: President and
Pebble Beach, CA 93953 Chief Executive Officer, Aspen Skiing
Company; 1973-1984: President and Chief
Executive Officer, Pebble Beach Company
(property management).
John B. Sias 70 Trustee President and CEO, Chronicle Publishing
C/O Chronicle Publishing Company, 1993 to Present; Company
901 Mission Street formerly, Director and Executive Vice
San Francisco, CA 94105 President, Capital Cities/ABC Inc. and
President, ABC Network T.V. Group.
Guy Rounsaville, Jr. 53 Trustee Partner, Allen, Matkins, Leck, Gamble &
333 Bush Street, #1700 Mallory LLP: General Counsel, Wells
San Francisco, CA 94104 Fargo Bank; 1977-1999: Corporate
Secretary, Wells Fargo & Company;
1978-1999.
</TABLE>
As shown on the following table the Funds pay the fees of the Trustees who
are not affiliated with the Manager, which are currently $2,500 per quarter and
$500 for each meeting attended. The table provides information regarding all
series of CIT as of September 30, 1999.
<TABLE>
<CAPTION>
Pension or Estimated Total compensation
retirement benefits annual respecting registrant
Aggregate accrued as Fund benefits upon and Fund complex
Name/Position compensation Expenses retirement paid to Trustees
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen C. Rogers None None None None
CEO, Trustee
Phillip W. McClanahan None None None None
Treasurer, Trustee
Harry Holmes $12,000 None None $12,000
Trustee
John B. Sias $12,000 None None $12,000
Trustee
Guy Rounsaville $12,000 None None $12,000
Trustee
</TABLE>
As of September, 30, 1999 Trustees and Officers as a group owned less than
1% of the outstanding shares of each Fund.
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<PAGE>
INVESTMENT MANAGEMENT AND OTHER SERVICES
Management Services
CCM Partners (the "Manager"), organized as a California Limited Partnership
on ____________, is the Manager of the Funds under an Investment Management
Agreement dated __________ (the "Agreement"). The general partner of the Manager
is RFS Partners, which is a California limited partnership controlled by Richard
F. Shelton, our President. In addition, the Manager has a number of limited
partners with extensive business and investment backgrounds, including the
following individuals: Hamilton W. Budge, of counsel to the law firm of Brobeck,
Phleger & Harrison; Doris F. Fisher, co-founder of The Gap, Inc.; Robin Quist
Gates, Trustee of the San Francisco Museum of Modern Art; Brooks Walker, Jr.,
Trustee of the San Francisco Museum of Modern Art, and Brayton Wilbur, Jr.,
President of Wilbur-Ellis, Inc.
Pursuant to the Agreement, the Manager supplies investment research and
portfolio management, including the selection of securities for the Funds to
purchase, hold, or sell and the selection of brokers or dealers through whom the
portfolio transactions of each Fund are executed. The Manager's activities are
subject to review and supervision by the Trustees to whom the Manager renders
periodic reports of the Funds' investment activities. The Manager, at its own
expense, also furnishes the Trust with executive and administrative personnel,
office space and facilities, and pays certain additional administrative expenses
incurred in connection with the operation of each Fund.
Each Fund pays for its own operating expenses and for its share of the
Trust's expenses not assumed by the Manager, including, but not limited to,
costs of custodian services, brokerage fees, taxes, interest, costs of reports
and notices to shareholders, costs of dividend disbursing and shareholder
record-keeping services (including telephone costs), auditing and legal fees,
the fees of the independent Trustees and the salaries of any officers or
employees who are not affiliated with the Manager, and its pro-rata portion of
premiums on the fidelity bond covering the Fund.
For the Manager's services, the Short-Term Government Fund and The
Nasdaq-100 Fund each pay a monthly fee computed at the annual rate of 1/2 of 1%
(0.50%) of the value of the average daily net assets of each Fund up to and
including assets of $500 million; plus 45/100 of 1% (0.45%) per annum of average
net assets over $500 million; and 4/10 of 1% (0.40%) per annum of average net
assets over $1 billion. For the Manager's services, the Manager is entitled to a
monthly fee from the European Fund computed at the annual rate of 75/100 of 1%
(0.75%) of the value of its average daily net assets.
The Agreement provides that the Manager is obligated to reimburse each of
the Funds' monthly (through a reduction of its management fees and otherwise)
for all expenses (except for extraordinary expenses such as litigation) in
excess of 1.00% of each Fund's average daily net assets. The Manager may also
reduce its fees in excess of its obligations under the Agreement.
The Manager has agreed to waive its fees and absorb expenses to the extent
necessary to limit total Fund operating expenses through August 31, 2000 to the
following annual rates of average net assets of each Fund: Short-Term Government
Fund-0.50%, The Nasdaq-100 Fund-0.65% and the European Fund-0.85%. The operating
expenses, including the management fee and all other expenses (excluding
extraordinary expenses), incurred by a Fund in excess of this expense ratio
limitation will be reimbursed to that Fund by the Manager out of the management
fee.
The Agreement with respect to the Funds are currently in effect until
December 31, 2001. The Agreement will be in effect thereafter only if it is
renewed for each Fund for successive periods not exceeding one year by (i) the
Board of Trustees of the Trust or a vote of a majority of the outstanding voting
securities of each Fund, and (ii) a vote of a majority of such Trustees who are
not parties to said Agreement or an interested person of any such party (other
than as a Trustee), cast in person at a meeting called for the purpose of voting
on such Agreement.
The Agreement may be terminated without penalty at any time by the Trust
with respect to one or more of the Funds to which the Agreement applies (either
by the Board of Trustees or by a majority vote of the terminating Fund's
outstanding shares); or by the Manager on 60 days' written notice, and will
automatically terminate in the event of its assignment as defined in the 1940
Act.
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<PAGE>
Information regarding advisory fees actually paid to the Manager has not
been provided since the Funds were launched on January 18, 2000.
Principal Underwriter
RFS Partners (the "Distributor"), a California limited partnership, is
currently the principal underwriter of each Fund's shares under an underwriting
agreement with each Fund, pursuant to which RFS Partners agrees to act as each
Fund's distribution agent. Each Fund's shares are sold to the public on a best
efforts basis in a continuous offering without a sales load or other commission
or compensation. RFS Partners is the general partner of the Funds' Manager. The
general partner of RFS Partners is Richard F. Shelton, Inc., a corporation that
is controlled by Richard F. Shelton Trust. Mr. McClanahan, a Trustee of the
Trust, is a limited partner of RFS Partners. While the shares of each Fund are
offered directly to the public with no sales charge, RFS Partners may, out of
its own monies, compensate brokers who assist in the sale of a Fund's shares.
Other Services
Firstar Mutual Fund Services, LLC (the "Shareholder Servicing Agent") is
the shareholder servicing agent for the Trust and acts as the Trust's transfer
and dividend-paying agent. In such capacities, it performs many services,
including portfolio and net asset valuation, bookkeeping, and shareholder
recordkeeping.
Firstar Bank Milwaukee (the "Custodian") acts as custodian of the
securities and other assets of the Trust. For its services, Firstar is paid a
monthly fee based upon a maintenance fee for each account in the Funds, plus
charges for Fund and shareholder transactions. For an additional fee, the
Custodian also performs portfolio and net asset valuation and the bookkeeping
and recordkeeping required by the 1940 Act. The Custodian does not participate
in decisions relating to the purchase and sale of portfolio securities.
Tait, Weller & Baker, Eight Penn Center Plaza, Suite 800, Philadelphia,
Pennsylvania 19103, is the independent auditor for the Trust.
The validity of shares of beneficial interest offered hereby has been
passed on by Paul, Hastings, Janofsky & Walker LLP, 345 California Street, San
Francisco, California 94104.
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<PAGE>
POLICIES REGARDING BROKER-DEALER
SUSED FOR PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Funds, assignment of their
portfolio business, and negotiation of commission rates and prices are made by
the Manager, whose policy is to obtain the "best execution" (prompt and reliable
execution at the most favorable security price) available. Since it is
anticipated that most purchases made by the Short-Term Government Fund will be
principal transactions at net prices, that Fund will incur few or no brokerage
costs. The Short-Term Government Fund will normally deal directly with the
selling or purchasing principal or market maker without incurring charges for
the services of a broker-dealer on its behalf unless it is determined that a
better price or execution may be obtained by utilizing the services of a
broker-dealer. Purchases of portfolio securities from underwriters may include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will normally include a spread between the bid and asked price.
When a broker-dealer is used for portfolio transactions, the Manager will
seek to determine that the amount of commissions paid is reasonable in relation
to the value of the brokerage and research services and information provided,
viewed in terms of either that particular transaction or its overall
responsibilities with respect to the Funds for which it exercises investment
discretion. In selecting broker-dealers and in negotiating commissions, the
Manager considers the broker-dealer's reliability, the quality of its execution
services on a continuing basis, the financial condition of the broker-dealer,
and the research services provided, which include furnishing advice as to the
value of securities, the advisability of purchasing or selling specific
securities and furnishing analysis and reports concerning state and local
governments, securities, and economic factors and trends, and portfolio
strategy. The Manager considers such information, which is in addition to and
not in lieu of the services required to be performed by the Manager under
Agreement, to be useful in varying degrees, but of indeterminable value.
The Funds may pay brokerage commissions in an amount higher than the lowest
available rate for brokerage and research services as authorized, under certain
circumstances, by the Securities Exchange Act of 1934, as amended. Where
commissions paid reflect research services and information furnished in addition
to execution, the Manager believes that such services were bona fide and
rendered for the benefit of its clients.
Provided that the best execution is obtained, the sale of shares of any of
the Funds may also be considered as a factor in the selection of broker-dealers
to execute the Funds' portfolio transactions. No affiliates of the Funds or of
the Manager will receive commissions for business arising directly or indirectly
out of portfolio transactions of the Funds.
If purchases or sales of securities of the Funds are considered at or about
the same time, transactions in such securities will be allocated among the
several Funds in a manner deemed equitable to all by the Manager, taking into
account the respective sizes of the Funds, and the amount of securities to be
purchased or sold. It is recognized that it is possible that in some cases this
procedure could have a detrimental effect on the price or volume of the security
so far as a Fund is concerned. In other cases, however, it is possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions or net prices will be beneficial to a Fund.
Information regarding brokerage commissions has not been provided since the
Funds were launched on January 18, 2000.
B-14
<PAGE>
ADDITIONAL INFORMATION REGARDING PURCHASES
AND REDEMPTIONS OF FUND SHARES
Purchase Orders
The purchase price for shares of the Funds is the net asset value of such
shares next determined after receipt and acceptance of a purchase order in
proper form. Many of the types of instruments in which the Funds invest must be
paid for in federal funds, which are monies held by the Custodian on deposit at
a Federal Reserve Bank. Therefore, the monies paid by an investor for shares of
the Funds generally cannot be invested by the Funds until they are converted
into and are available to a Fund in federal funds, which may take up to two
business days. In such cases, purchases by investors will not be considered in
proper form and effective until such conversion and availability. However, in
the event a Fund is able to make investments immediately (within one business
day), it may accept a purchase order with payment otherwise than in federal
funds; in such event shares of a Fund will be purchased at the net asset value
next determined after receipt of the order and payment. Once shares of a Fund
are purchased, they begin earning income immediately, and income dividends will
start being credited to the investor's account on the day following the
effective date of purchase and continue through the day the shares in the
account are redeemed.
Payments transmitted by wire and received by the Custodian prior to the
close of the New York Stock Exchange (the "NYSE"), normally at 4:00 p.m. eastern
time (1:00 p.m. pacific time) on any business day are normally effective on the
same day as received. Wire payments received by the Custodian after that time
will normally be effective on the next business day and such purchases will be
made at the net asset value next calculated after receipt of that payment.
Payments transmitted by check or other negotiable bank draft will normally be
effective within two business days for checks drawn on a member bank of the
Federal Reserve System and longer for most other checks. All checks are accepted
subject to collection at full face value in U.S. funds and must be drawn in U.S.
dollars on a U.S. bank. Checks drawn in U.S. funds on foreign banks will not be
credited to the shareholder's account and dividends will not begin accruing
until the proceeds are collected, which can take a long period of time.
Shareholder Accounting
All purchases of Fund shares will be credited to the shareholder in full
and fractional shares of the relevant Fund (rounded to the nearest 1/1000 of a
share) in an account maintained for the shareholder by the Trust's transfer
agent. Share certificates will not be issued for any Fund at any time. To open
an account in the name of a corporation, a resolution of that corporation's
Board of Directors will be required. Other evidence of corporate status or the
authority of account signatories may also be required.
The Trust reserves the right to reject any order for the purchase of shares
of any Fund, in whole or in part. In addition, the offering of shares of any
Fund may be suspended by the Trust at any time and resumed at any time
thereafter.
Shareholder Redemptions
All requests for redemption and all share assignments should be sent to the
applicable Fund, 44 Montgomery Street, Suite 2100, San Francisco, California
94104, or, by calling the Fund at (800) 225-8778.
Redemptions will be made in cash at the net asset value per share next
determined after receipt by the transfer agent of a redemption request in proper
form, including all share assignments, signature guarantees, and other
documentation as may be required by the transfer agent. The amount received upon
redemption may be more or less than the shareholder's original investment.
The Trust will attempt to make payment for all redemptions within one
business day, but in no event later than seven days after receipt of such
redemption request in proper form. However, the Trust reserves the right to
suspend redemptions or postpone the date of payment (1) for any periods during
which the NYSE is closed (other than for the customary weekend and holiday
closings), (2) when trading in the markets the Trust usually utilizes is
restricted or an emergency exists, as determined by the Securities and Exchange
Commission ("SEC"), so that disposal of the Trust's investments or the
determination of a Fund's
B-15
<PAGE>
net asset value is not reasonably practicable, or (3) for such other periods as
the SEC by order may permit for the protection of a Trust's shareholders. Also,
the Trust will not mail redemption proceeds until checks used for the purchase
of the shares have cleared.
As of the date of this Statement of Additional Information, the Trust
understands that the NYSE is closed for the following holidays: New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas. The Trusts has advised that the Custodian is
also closed on Martin Luther King's Birthday. On holidays in which the Custodian
is closed, any transactions will be processed on the following business day.
Due to the relatively high cost of handling small investments, the Trust
reserves the right to redeem, involuntarily, at net asset value, the shares of
any shareholder whose accounts in the Funds have an aggregate value of less than
$5,000 ($1,000 in the case of the Stock Funds), but only where the value of such
accounts has been reduced by such shareholder's prior voluntary redemption of
shares. In any event, before the Trust redeems such shares and sends the
proceeds to the shareholder, it will notify the shareholder that the value of
the shares in that shareholder's account is less than the minimum amount and
allow that shareholder 30 days to make an additional investment in an amount
which will increase the aggregate value of that shareholder's account to at
least $5,000 before the redemption is processed ($1,000 in the case of the Stock
Funds).
Use of the Exchange Privilege as described in the Prospectus in conjunction
with market timing services offered through numerous securities dealers has
become increasingly popular as a means of capital management. In the event that
a substantial portion of a Fund's shareholders should, within a short period,
elect to redeem their shares of that Fund pursuant to the Exchange Privilege,
the Fund might have to liquidate portfolio securities it might otherwise hold
and incur the additional costs related to such transactions. The Exchange
Privilege may be terminated or suspended by the Funds upon 60 days' prior notice
to shareholders.
Redemptions in Kind
The Trust has committed itself to pay in cash all requests for redemption
by any shareholder of record, limited in amount, however, during any 90-day
period to the lesser of $250,000 or 1% of the value of the applicable Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. In the case of requests for redemption in excess
of such amounts, the Trustees reserve the right to make payments in whole or in
part in securities or other assets of the Fund from which the shareholder is
redeeming in case of an emergency, or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of that Fund or the
Trust. In such circumstances, the securities distributed would be valued at the
price used to compute such Fund's net asset value. Should a Fund do so, a
shareholder would likely incur transaction fees in converting the securities to
cash.
Determination of Net Asset Value Per Share ("NAV")
The portfolio securities of the Short-Term Government Fund and the Stock
Funds are generally valued at the last reported sale price. Securities held by a
Stock Fund that have no reported last sale for any day that that Fund's NAV is
calculated and securities and other assets for which market quotations are
readily available are valued at the latest available bid price. Portfolio
securities held by the Short-Term Government Fund for which market quotations
are readily available are valued at the latest available bid price. All other
securities and assets are valued at their fair value as determined in good faith
by the Board of Trustees. Securities with remaining maturities of 60 days or
less are valued on the amortized cost basis unless the Trustees determine that
such valuation does not reflect fair value. The Trust may also utilize a pricing
service, bank, or broker/dealer experienced in such matters to perform any of
the pricing functions.
TAXATION
Each Fund is treated as a separate entity and intends to continue to
qualify in each year to be treated as a separate "regulated investment company"
under the Internal Revenue Code of 1986 (the "Code"). Each of the Funds has
elected such treatment. To qualify for the tax treatment afforded a regulated
investment company under the Code, a Fund must distribute for each fiscal year
at least 90% of its taxable income (including net realized short-term capital
gains) and tax-exempt net investment income
B-16
<PAGE>
and meet certain source of income, diversification of assets and other
requirements of the Code. Provided a Fund continues to qualify for such tax
treatment, it will not be subject to federal income tax on the part of its net
investment income and its net realized capital gains which it distributes to
shareholders, nor will it be subject to Massachusetts or California income or
excise taxation. Each Fund must also meet certain Code requirements relating to
the timing of its distributions, which generally require the distribution of
substantially all of its taxable income and capital gains each calendar year, in
order to avoid a 4% federal excise tax on certain retained amounts.
Each Stock Fund may purchase or sell futures contracts. Such transactions
are subject to special tax rules which may affect the amount, timing and
character of distributions to shareholders. Unless a stock Fund is eligible to
make and makes a special election, such futures contracts that are "Section 1256
contracts" (such as a futures contract the margin requirements for which are
based on a marked-to-market system and which is traded on a "qualified board or
exchange") will be "marked to market" for federal income tax purposes at the end
of each taxable year, i.e., each futures contract will be treated as sold for
its fair market value on the last day of the taxable year. In general, unless
the special election is made, gain or loss from transactions in such futures
contracts will be 60% long-term and 40% short-term capital gain or loss.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of a Stock Fund's transactions in futures contracts. Under Section
1092, a Stock Fund may be required to postpone recognition for tax purposes of
losses incurred in certain closing transactions in futures.
Dividends of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable to shareholders as
ordinary income, whether such distributions are taken in cash or reinvested in
additional shares. Distributions of net long-term capital gains (i.e., the
excess of net long-term capital gains over net short-term capital losses), if
any, are taxable as long-term capital gains, whether such distributions are
taken in cash or reinvested in additional shares, and regardless of how long
shares of a Fund have been held. The current maximum federal individual tax rate
applicable to ordinary income is 39.6%. The current maximum federal individual
tax rate applicable to net long-term capital gains is 20% for investments held
longer than 12 months. Dividends declared by a Fund in October, November, or
December of any calendar year to shareholders of record as of a record date in
such a month will be treated for federal income tax purposes as having been
received by shareholders on December 31 of that year if they are paid during
January of the following year.
A portion of each Stock Fund's ordinary income dividends may qualify for
the dividends received deduction available to corporate shareholders under Code
Section 243 to the extent that the Fund's income is derived from qualifying
dividends. Availability of the deduction is subject to certain holding periods
and debt-financing limitations. Because a Fund may also earn other types of
income such as interest, income from securities loans, non-qualifying dividends,
and short-term capital gains, the percentage of dividends from a Fund that
qualifies for the deduction generally will be less than 100%.
Each Stock Fund will notify corporate shareholders annually of the
percentage of Fund dividends that qualifies for the dividends received
deduction. Each Fund is required to file information reports with the IRS with
respect to taxable distributions and other reportable payments made to
shareholders. The Code requires backup withholding of tax at a rate of 31% on
redemptions (except redemptions of Short-Term Government Fund shares) and other
reportable payments made to non-exempt shareholders if they have not provided
the Fund with their correct social security or other taxpayer identification
number and made the certifications required by the IRS or if the IRS or a broker
has given notification that the number furnished is incorrect or that
withholding applies as a result of previous underreporting. Such withholding
will apply to the proceeds of redemption or repurchase of Fund (except
Short-Term Government Fund) shares for which the correct taxpayer identification
number has not been furnished in the manner required or if withholding is
otherwise applicable. Therefore, investors should make certain that their
correct taxpayer identification number and completed certifications are included
in the application form when opening an account.
The information above is only a summary of some of the tax considerations
generally affecting the Funds and their shareholders. No attempt has been made
to discuss individual tax consequences and this discussion should not be
construed as applicable to all shareholders' tax situations. Investors should
consult their own tax advisers to determine the suitability of a particular Fund
and the applicability of any
B-17
<PAGE>
federal, state, local, or foreign taxation. Paul, Hastings, Janofsky & Walker
LLP has expressed no opinion in respect thereof. Foreign shareholders should
consider, in particular, the possible application of U.S. withholding taxes on
certain taxable distributions from a Fund at rates up to 30% (subject to
reduction under certain income tax treaties).
HOW ARE DIVIDENDS, DISTRIBUTIONS AND TAXES HANDLED
Each business day, we credit the Short-Term Government Fund shareholder
account with a dividend consisting of substantially all of the net investment
income earned by the Fund since the last dividend. Such dividends are then paid
on the last business day of each month. If you redeem all shares in your
Short-Term Government Fund account at any time during a month, all dividends
credited to your account are paid to you along with the proceeds of redemption.
On the last business day of the month (payment date), we will distribute
dividends to Short-Term Government Fund shareholders substantially equal to all
the net investment income earned by each Fund during that month. Shareholders
eligible for the dividend are those who hold shares as of the date of record,
which is the next to the last business day of that month.
Shareholders who reinvest their dividends will have their dividends
reinvested on the payment date of that month, at that day's closing price. We
will mail dividends to shareholders typically on the next business day following
the payment date. Investors who select our Electronic Funds Transfer ("EFT")
option will have their personal accounts credited normally within two business
days following the payment date.
Each Stock Fund ordinarily pays dividends from net investment income
quarterly and distributes net realized securities gains, if any, annually, but
may make distributions on a more frequent basis to comply with the distribution
requirements of the Code, and in all events in a manner consistent with the
provisions of the 1940 Act. On the last business day of March, June, September
and December we distribute dividends to shareholders of each Stock Fund
substantially equal to all the net investment income earned by each Stock Fund
during the prior three months payable to shareholders of record as of the second
to the last business day of March, June, September and December, respectively.
Unless you otherwise indicate on your account application or notify the
Shareholder Servicing Agent in writing later that you wish to receive cash, we
will automatically reinvest all income dividends and capital gains distributions
in additional shares of the Fund from which they were paid at no cost to you.
Distributions are treated in the same manner for tax purposes whether paid in
cash or reinvested in additional shares.
The Funds will not make distributions from net realized securities gains
unless capital loss carryovers, if any, have been utilized by each Fund or have
expired. All expenses are accrued daily and deducted before declaration of
dividends to investors.
For tax purposes, each Fund is treated as a separate taxable entity. Thus,
any distributions of capital gains are on a per Fund basis rather than
aggregated for the Trust as a whole. Any capital gains you may receive on your
investment in the Funds are taxable (unless you are a tax-exempt organization
that has not borrowed money to purchase shares). One annual payment from net
realized capital gains (after offsetting any available capital loss carryovers)
of each Fund, if any, will be distributed for the 12-month period ending October
31. When these distributions represent a Fund's long-term capital gains, the
Code treats them that way for you, whether you take them in cash or reinvest
them in additional shares, and regardless of how long you have been a
shareholder. The determining factor is how long the Fund held the securities
that produced the gains. You also may receive distributions of short-term
capital gains, which will be taxed as ordinary income. Any dividend or
distribution declared in October, November or December as of a record date in
such months and paid in the following January will be treated as received on
December 31 for federal tax purposes. Shareholders will be informed after the
close of each calendar year as to the federal income tax consequences of
distributions made each year.
You may also realize a gain or a loss in any year in which you redeem
(sell) shares since the net asset value of the Funds fluctuate. The tax
treatment will depend, of course, on how long you owned your shares and on your
individual tax position. Any loss realized upon the redemption of shares within
six months from the date of their purchase will be disallowed to the extent of
tax-exempt dividends received
B-18
<PAGE>
during such period or will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-term capital gains during such
six-month period. In addition, all or a portion of any such loss will be
disallowed to the extent other shares of the same Fund are acquired (including
by reinvestment of dividends) within 30 days before or after such redemption.
We use the accounting practice called equalization for the Funds in order
to avoid the dilution of the dividends payable to existing shareholders. Under
this procedure, that portion of the net asset value per share of the Fund which
is attributable to undistributed income is allocated as a credit to
undistributed income in connection with the purchase of shares or a debit to
undistributed income in connection with the redemption of shares. Thus, after
every distribution, the value of a share drops by the amount of the
distribution. If you purchase shares of one of these Funds before the record
date of a distribution (the next to the last business day of the month) and
elect to have distributions paid to you in cash, you will pay the full price for
the shares and then receive some portion of that price back in the form of a
taxable distribution. This is sometimes referred to as buying a dividend.
Dividends and distributions from net realized short-term securities gains paid
or credited to accounts maintained by U.S. nonresident shareholders also may be
subject to U.S. nonresident withholding taxes.
Notice as to the tax status of your dividends and distributions is mailed
to you annually. We will send you a statement of your account at least quarterly
and after every transaction that affects your share balance or registration.
YIELD DISCLOSURE AND PERFORMANCE INFORMATION
As noted elsewhere in this Statement of Additional Information, each Fund
may from time to time quote various performance figures in advertisements and
investor communications to illustrate the Fund's past performance. Performance
information published by the Funds will be in compliance with rules adopted by
the SEC. These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by a
Fund be accompanied by certain standardized performance information computed as
required by the SEC. An explanation of the methods used by the Funds to compute
or express performance is discussed below.
Total Return
Total return for the Funds may be stated for any relevant period as
specified in the advertisement or communication. From time to time each Fund may
publish its total return. Yield information for the Short-Term Government Fund
will be accompanied by total return information on the Fund. Total return
information will state each Fund's average annual compounded rates of return
over the most recent four calendar quarters and over the life of the Fund, based
upon the value of shares acquired through a hypothetical $1,000 investment at
the beginning of the specified period and the net asset value of such shares at
the end of the period assuming reinvestment of all distributions at net asset
value. Each Fund also may advertise aggregate and average total return
information over different periods of time. It is calculated according to the
following standardized formula:
n
P(1+T) = ERV
B-19
<PAGE>
where:
P = a hypothetical initial purchase order of $1,000 from which the maximum
sales load is deducted
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at the end of
the period
Aggregate total return information is calculated by the following formula:
(ERV - P)/P
P = a hypothetical initial payment of $1,000.
ERV = Ending Redeemable Value of a hypothetical $1,000 investment made at the
beginning of a 1-, 5- or 10-year period at the end of a 1-, 5- or 10-year
period (or fractional portion thereof), assuming reinvestment of all
dividends and distributions and complete redemption of the hypothetical
investment at the end of the measuring period.
Yield
As stated elsewhere in this Statement of Additional Information, the
Short-Term Government Fund may also quote its current yield and, where
appropriate, effective yield and tax equivalent yield in advertisements and
investor communications.
The current yield for the Short-Term Government Fund is determined by
dividing the net investment income per share earned during a specified 30-day
period by the net asset value per share on the last day of the period and
annualizing the resulting figure, according to the following formula:
6
Yield = 2[(((a-b)/cd)+1) - 1)]
where:
a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.
Each Fund also may publish a distribution rate in investor communications
preceded or accompanied by a copy of the Prospectus. The current distribution
rate for each Fund is calculated by dividing the annualization of the total
distributions made by the Fund during a stated period by the net asset value per
share at the end of such period. The distribution rate for a Fund may differ
from its yield because the distribution rate may be calculated for a different
period of time and may contain items of income that are not reflected in a
Fund's yield.
Distribution Rate
Each Fund may also include a reference to its current distribution rate in
investor communications and sales literature preceded or accompanied by the
Prospectus, reflecting the amounts actually distributed to shareholders. All
calculations of a Fund's distribution rate are based on the distributions per
share which are declared, but not necessarily paid, during the fiscal year. The
distribution rate is determined by dividing the distributions declared during
the period by the net asset value per share on the last day of the period and
annualizing the resulting figure. In calculating its distribution rate, each
Fund uses the same assumptions that apply to the calculation of yield. The
distribution rate will differ from a Fund's yield because it may include capital
gains and other items of income not reflected in that Fund's yield, as well as
interest income received by that Fund and distributed to shareholders which is
reflected in that Fund's yield. The distribution rate does not reflect capital
appreciation or depreciation in the price of a Fund's shares and should not be
considered to be a complete indicator of the return to the investor on his/her
investment.
Comparisons
From time to time, advertisements and investor communications may compare a
Fund's performance to the performance of other investments as reported in
various indices or averages, in order to enable an investor to evaluate better
how an investment in a particular Fund might satisfy his/her investment
objectives. The Funds may also publish an indication of past performance as
measured by Lipper Analytical Services, Inc., a widely recognized independent
service which monitors the performance of mutual Funds. The Lipper performance
analysis includes the reinvestment of dividends and capital gains distributions,
but does not take any sales charges into consideration and is prepared without
regard to tax consequences. In addition to Lipper, the Funds may publish an
indication of past performance as measured by other independent sources.
B-20
<PAGE>
The Short-Term Government Fund may also quote (among others) the following
indices of bond prices prepared by Salomon Brothers, Inc. and Lehman Brothers,
Inc. These indices are not managed for any investment goal. Their composition
may, however, be changed from time to time by Salomon Brothers, Inc.
The performance of a Fund may also be compared to compounded rates of
return regarding a hypothetical investment of $2,000 at the beginning of each
year, earning interest throughout the year at the compounding interest rates of
5%, 7.5% and 10%.
In assessing any comparisons of total return or yield, an investor should
keep in mind that the composition of the investments in a reported average is
not identical to a Fund's portfolio, that such averages are generally unmanaged
and that the items included in the calculations of such averages may not be
identical to the formula used by the Fund to calculate its total return or
yield. In addition, there can be no assurance that a Fund will continue its
performance as compared to any such averages.
MISCELLANEOUS INFORMATION
The shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable as partners for its obligations.
However, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust also provides for indemnification and reimbursement of expenses out of
Trust assets for any shareholder held personally liable for obligations of the
Trust. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon. All such rights
are limited to the assets of the Fund(s) of which a shareholder holds shares.
The Declaration of Trust further provides that the Trust may maintain
appropriate insurance (for example, fidelity bonding and errors and omissions
insurance) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents to cover possible tort and other liabilities.
Furthermore, the activities of the Trust as an investment company as
distinguished from an operating company would not likely give rise to
liabilities in excess of a Fund's total assets. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which both inadequate insurance exists and a Trust itself is
unable to meet its obligations.
Although each Fund is offering only its own shares by this joint Statement
of Additional Information and joint Prospectus, it is possible that a Fund might
become liable for any misstatements in this Statement of Additional Information
or in the Prospectus about one of the other Funds. The Board of Trustees of the
Trust has considered this possibility in approving the use of a joint Prospectus
and Statement of Additional Information.
Among the Board's powers enumerated in the Declaration of Trust is the
authority to terminate the Trust or any of its series, or to merge or
consolidate the Trust or one or more of its series with another trust or company
without the need to seek shareholder approval of any such action.
As of January 18, 2000, the sole initial shareholder of the Funds, the
Distributor, held substantially all of the shares of the Funds for
organizational purposes.
Financial Statements
There are no financial statements for the Funds since the Funds were
launched on January 18, 2000.
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<PAGE>
CALIFORNIA INVESTMENT TRUST II
FORM N-1A
------------------------------
PART C
OTHER INFORMATION
-------------------------------
<PAGE>
CALIFORNIA INVESTMENT TRUST II
FORM N-1A
PART C. OTHER INFORMATION
-------------------------
Item 23. Exhibits.
---------
(a) Amended and Restated Agreement and Devaluation of Trust as
incorporated by reference to Post-Effective Amendment No.1 as filed on
November 25, 1985.
(b) By-Laws is incorporated by reference to the original Registration
Statement filed on September 27, 1985.
(c) Instrument Defining Rights of Security Holder - - Not applicable.
(d) Investment Advisory Contract is incorporated by reference
Post-Effective Amendment No. 1 as filed on November 25, 1985.
(e) Underwriting Contract is incorporated by reference Post-Effective
Amendment No. 12 as filed on February 11, 1992.
(f) Bonus or Profit Sharing Contracts - - not applicable.
(g) Custodian Agreement is incorporated by reference Post-Effective
Amendment No. 1 as filed on November 25, 1985.
(h) Other Material Contracts - - Not applicable.
(i) Opinion and Consent of Counsel - - Not applicable.
(j) Other Opinion: Independent Auditors' Consent - - Filed herewith.
(k) Omitted Financial Statements - - Not applicable.
(l) Initial Capital Agreement is incorporated by reference Post-Effective
Amendment No. 1 as filed on November 25, 1985.
(m) Rule 12b-1 Plan - - Not applicable.
(n) Financial Data Schedule - - Not applicable.
(o) 18f-3 Plan - - Not applicable.
C-1
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant.
--------------------------------------------------------------
As of the date of this Post-Effective Amendment, to the knowledge of
the Registrant, the Registrant did not control any other person, nor was it
under common control with another person.
Item 25. Indemnification.
----------------
Please see Article VI of By-Laws and Article VII, Section 3 of the
Agreement and Declaration of Trust, as amended. Pursuant to Rule 484 under the
Securities Act of 1933, as amended, the Registrant furnishes the following
undertaking:
"Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue."
Notwithstanding the provisions contained in the Registrant's By-Laws,
in the absence of authorization by the appropriate court on the merits pursuant
to Sections 4 and 5 of Article VI of said By-Laws, any indemnification under
said Article shall be made by Registrant only if authorized in the manner
provided in either subsection (a) or (b) of Section 6 of Article VI.
C-2
<PAGE>
Item 26. Business and Other Connections of Investment Adviser.
-----------------------------------------------------
A. The Manager. CCM Partners, a California Limited Partnership, is the
Registrant's investment adviser with respect to these Funds. CCM Partners has
been engaged during the past two fiscal years as investment adviser of the
California Investment Trust and California Investment Trust II, a diversified,
open-end management investment company, which comprises the following series:
California Tax-Free Income Fund, California Tax-Free Money Market Fund (from
December, 1990 through February 27,1993, CCM Partners served only as the
administrator and not as adviser for this fund), California Insured Tax-Free
Income Fund, U.S. Government Securities Fund, The United States Treasury Trust,
S&P 500 Index Fund, S&P MidCap Index Fund, S&P SmallCap Index Fund, and the
Equity Income Fund. The principal business address of California Investment
Trust is 44 Montgomery Street, Suite 2100, San Francisco, California 94104.
From December, 1990 through February 27, 1993, CCM Partners also
served as investment adviser of the California Tax-Free Money Trust, a
registered management investment company. The principal business address of
California Tax-Free Money Trust is 6 St. James Avenue, Boston, Massachusetts
02116.
The officers of CCM Partners are Phillip W. McClanahan and Stephen C.
Rogers. Phillip W. McClanahan has served as an officer and Trustees of the
Registrant and California Investment Trust during the past two fiscal years. The
address for these individuals is 44 Montgomery Street, Suite 2100, San
Francisco, CA 94104. Stephen C. Rogers has also served as an officer of the
Registrant and California Investment Trust since October 1994. Stephen C. Rogers
was elected to the Board as Secretary and Trustee on August 4, 1998. On October
26, 1999, Stephen C. Rogers was elected as Chairman of the Board. For additional
information, please see Part B of this Registration Statement.
C-3
<PAGE>
Item 27. Principal Underwriters.
-----------------------
RFS Partners is the principal underwriter of the Registrant, and in
that capacity distributes the shares of the Funds. RFS Partners also serves as
principal underwriter for the California Investment Trust. Certain limited
partners of RFS Partners also serve as officers and/or trustees of the
Registrant.
Item 28. Locations of Accounts and Records.
----------------------------------
The accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules thereunder are
kept by the Registrant's Shareholder Servicing and Transfer Agent, Firstar
Mutual Fund Services, LLC, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
Item 29. Management Services.
--------------------
All management-related service contracts are discussed in Part A or
Part B of this Form N-1A.
Item 30. Undertakings.
-------------
(a) not applicable
(b) not applicable
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's last
Annual Report to Shareholders, upon request and without charge.
(d) Registrant has undertaken to comply with Section 16(a) of the
Investment Company Act of 1940, as amended, which requires the
prompt convening of a meeting of shareholders to elect trustees
to fill vacancies in the Registrant's Board of Trustees in the
event that less than a majority of the Trustees have been elected
to such position by shareholders. Registrant has also undertaken
promptly to call a meeting of shareholders for the purpose of
voting upon the question of removal of Trustee or Trustees when
requested in writing to do so by the record holders of not less
than 10% of the Registrant's outstanding shares and to assist its
shareholders in communicating with other shareholders in
accordance with the requirements of section 16(c) of the
Investment Company Act of 1940, as amended.
C-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant has duly caused
this Post-Effective Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
San Francisco, the State of California, on the 5th day of November, 1999.
CALIFORNIA INVESTMENT TRUST II
------------------------------
(Registrant)
By Stephen C. Rogers*
-----------------------------
Stephen C. Rogers, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registrant's Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signature Capacity Date
- --------- -------- ----
Stephen C. Rogers* Principal Executive November 5, 1999
- ---------------------- Officer, Secretary and Trustee
Stephen C. Rogers
Phillip W. McClanahan* Principal Financial November 5, 1999
- ---------------------- and Accounting Officer
Phillip W. McClanahan and Trustee
Harry Holmes* Trustee November 5, 1999
- ----------------------
Harry Holmes
John B. Sias* Trustee November 5, 1999
- ----------------------
John B. Sias
Guy Rounsaville, Jr.* Trustee November 5, 1999
- ----------------------
Guy Rounsaville, Jr.*
* By: /s/ Julie Allecta
----------------------------------------
Julie Allecta, Attorney-in-Fact Pursuant
to Power of Attorney previously filed.
C-5
CALIFORNIA INVESTMENT TRUST II
EXHIBIT NO. (23)(j)
CONSENT OF INDEPENDENT ACCOUNTANTS
(Tait, Weller & Baker)
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in the Post-Effective
Amendment to the Registration Statement on Form N-1A of California Investment
Trust II. Performance results have not been provided because the Fund has not
been in existence for a full fiscal year.
/s/ TAIT, WELLER & BAKER
------------------------
TAIT, WELLER & BAKER